Asia’s loss of economic output due to the COVID-19 pandemic is likely to persist until 2022, the IMF said.
The assessment is a warning about the prospects for a global recovery after the pandemic tipped the world economy into its worst collapse since the Great Depression. The Asian region contributed about 68 percent of global growth last year, the IMF said.
While regional growth is tipped to rebound to 6.6 percent next year, that would not be enough to replace all of the output lost due to the crisis.
Photo: EPA-EFE
“We project Asia’s economic output in 2022 to be about 5 percent lower compared with the level predicted before the crisis; and this gap will be much larger if we exclude China,” IMF Asia and Pacific Department director Changyong Rhee said.
“Even when lockdown measures are fully relaxed, economic activity is not likely to return to full capacity, due to changes in individual behaviors and measures put in place to maintain physical distancing and reduce contagion,” he said.
The fund last week said it expects global GDP to shrink 4.9 percent this year, more than the 3 percent contraction predicted in April.
For next year, the fund sees growth of 5.4 percent, down from 5.8 percent.
Asia is tipped to contract by 1.6 percent this year — the first such outcome in living memory, according to Rhee, and a downgrade from the fund’s April projection of output being unchanged.
Still, Asia continues to provide ballast. If the region’s growth was as negative as the rest of the world, then global growth forecasts would be at about minus-7.6 percent, Rhee said.
Close coordination between central banks and finance ministries would be an important part of the policy response given the limited room to borrow that many emerging economies in Asia face, he said.
Policy options include making more use of central bank balance sheets to funnel lending to smaller firms. Temporary capital controls might be needed in the event of large outflows.
While portfolio outflows from the region have stabilized, net outflows compared with the global financial crisis remain high, Rhee said.
Governments would also need to keep an eye on their borrowing even as more crisis spending is needed.
“They must use fiscal stimulus in the short term, but complement it with a credible medium-term reform plan to mitigate debt overhang concerns,” Rhee said. “That will help to maintain sovereign credit ratings.”
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