As the COVID-19 pandemic sweeps over Asia, yielding “unprecedented” damage on the region’s major export countries and the service sector, the International Monetary Fund (IMF) reported on Wednesday (15 April) that Asia’s economic growth in 2020 will screech to a halt for the first time in 60 years.
According to the Director of the IMF’s Asia and Pacific Department, Changyong Rhee, targeted support should be given to businesses and households which have been hit the hardest by social distancing policies, travel bans, among other measures designed to contain the outbreak.
“These are highly uncertain and challenging times for the global economy. The Asia-Pacific region is no exception. The impact of the coronavirus on the region will be severe, across the board, and unprecedented,” Mr Rhee said at a virtual news briefing done via live webcast.
“This is not a time for business as usual. Asian countries need to use all policy instruments in their toolkits,” he added.
Compared to the projection of average growth rate contraction during the 2008 global financial crisis at 4.7 per cent and the 1997 Asian financial crisis at 1.3 per cent, the projection for Asia for this period is worse. However, the Asian region will likely perform better than other regions, IMF reported.
Economic growth in Asia has been predicted by the IMF to be 7.6 per cent in 2021 on the grounds that containment measures succeed although outlook remains highly uncertain.
IMF reported that Asia’s service sector was directly impacted by the pandemic as shops are forced to close and households forced to remain at home. This is in contrast with the 2008 collapse of Lehman Brothers during the global financial crisis.
Amid the weakening demand from key trading partners like the European countries and the US, Asia’s major exporters were also taking a beating in trade activities, IMF stated.
For 2020, the IMF forecast in January of China’s growth was 6 per cent, but now the growth forecast for China is at 1.2 per cent. The factors behind this are lower domestic activity due to social distancing measures as well as weak exports.
IMF stated that China is expected to rebound in activity later in 2020, with growth rate rebounding back to 9.2 per cent in 2021.
However, the possibility of the re-emergence of COVID-19 could slow down normalisation, posing risks still to China’s growth, the IMF explained.
“Chinese policymakers have reacted very strongly to the outbreak of the crisis … If the situation becomes aggravated, they have more room to use fiscal, monetary policies,” Mr Rhee affirmed.
“Whether that would be needed will really depend on progress in containing the virus,” he added.
The IMF recommended Asian policymakers to channel ample liquidity into markets to lighten the financial burden experienced by small and medium-sized firms as well as to provide targeted support to businesses and households severely impacted by the pandemic.
For many Asian nations, direct cash transfers to citizens like the one implemented by the US might not be the best policy. Rather, Asian countries should ensure that small firms remain in operation so that unemployment increase can be avoided, Mr Rhee cautioned.
IMF also suggested that emerging economies in Asia (1) use capital controls to prevent disruptive capital outflows, (2) seek financial help from multilateral institutions and (3) utilise multilateral and bilateral swap lines amid this current pandemic situation.