WASHINGTON – The International Monetary Fund (IMF) revised down its forecast for the Asian economy amid the mounting COVID-19 fallout, projecting a 1.6% contraction in 2020, reported the Xinhua News Agency.
The latest projection is a downgrade from the projection of zero growth in April’s World Economic Outlook forecast, indicating stronger global headwinds as the pandemic’s impact continues to ripple throughout the world.
“Projections for 2020 have been revised down for most of the countries in the [Asian] region due to weaker global conditions and more protracted containment measures in several emerging economies,” Chang Yong Rhee, a director of the IMF’s Asia and Pacific Department, wrote in a blog post.
Rhee noted that Asia’s economic growth in the first quarter of 2020 was better than previously projected, partly owing to early stabilisation of the virus in some countries.
In the absence of a second wave of infections and with unprecedented policy stimulus to support the recovery, growth in Asia is projected to rebound strongly to 6.6% in 2021, according to Rhee.
“But even with this fast pickup in economic activity, output losses due to COVID-19 are likely to persist,” he wrote.
The IMF projects Asia’s economic output in 2022 to be about 5% lower compared with the level predicted before the crisis, and this gap “will be much larger” if China is excluded, where economic activities have already started to rebound, Rhee said.
The IMF official also noted that projections for 2021 and beyond assume a strong rebound in private demand, though there are “clouds on the horizon”, which could undermine Asia’s recovery.
Such “clouds” include a slower growth in trade, longer-than-expected lockdowns, rising inequality, weak balance sheets and geopolitical tensions.
Noting that not all recent developments have been negative, Rhee said many Asian countries had been able to provide significant monetary and fiscal policy support, often in the form of guarantees and loans to households and firms.
Additionally, lower oil prices and improved market sentiment and financial conditions are helping the recovery, he said, while adding that these factors “may not last”.
“Asian countries are experimenting reopening, and policies must be geared towards supporting the nascent recovery without exacerbating vulnerabilities,” the IMF official said. “They must use fiscal stimulus wisely and complement it with economic reforms.”
The priorities, he argued, include close coordination between monetary and fiscal policies, ensuring resources are reallocated appropriately, as well as addressing inequalities.