Calling the impact of the coronavirus pandemic on Asia “severe and unprecedented”, the International Monetary Fund (IMF) said that growth in the region is expected to stall at zero per cent in 2020 and that there is huge uncertainty about the 2021 outlook.
“This is a crisis like no other. It is worse than the Global Financial Crisis, and Asia is not immune. This is a real economic shock and requires protecting people, jobs, and industries directly,” Chang Yong Rhee, director of the IMF’s Asia and Pacific Department, wrote in a blog post.
According to IMF, this is going to be the lowest growth in the region since 1960—including the Asian financial crisis of 1998 and the global financial crisis of 2008. In 1998, the Asia-Pacific region grew 4.7% while in 2008, it grew 1.3%. “That said, Asia still looks to fare better than other regions in terms of activity,” IMF said.
Within the region, pacific island countries are among the most vulnerable given the limited fiscal space, as well as comparatively underdeveloped health infrastructure.
Rhee calls this a “double slowdown”. He said that two factors, the global slowdown and China’s slowdown are key in shaping the outlook for Asia. “The global economy is expected to contract in 2020 by 3%—the worst recession since the Great Depression. This is a synchronized contraction, a sudden global shutdown. Asia’s key trading partners are expected to contract sharply, including the United States by 6.0% and Europe by 6.6%,” Rhee said.
When it comes to China, its growth is projected to decline from 6.1% in 2019 to 1.2% in 2020. But during the global financial crisis, China’s growth stayed little changed at 9.4% in 2019 due to important fiscal stimulus of about 8% of GDP. “We cannot expect that magnitude of stimulus this time, and China won’t help Asia’s growth as it did in 2009,” Rhee explained.
IMF says that prospects for 2021, while highly uncertain, are for strong growth. “If containment measures work, and with substantial policy stimulus to reduce “scarring,” growth in Asia is expected to rebound strongly—more so than during the Global Financial Crisis,” it said.
Rhee suggests that the first priority is to support and protect the health sector to contain the virus and introduce measures that slow contagion. “If there is not enough space within countries’ budgets, they will need to re-prioritise other spending,” he said.
He acknowledges that containment measures are severely affecting economies. “Targeted support to hardest-hit households and firms is needed. This is a real economic shock—unlike the Global Financial Crisis—and requires protecting people, jobs, and industries directly, not just through financial institutions,” he said.
Since the pandemic is affecting financial markets and how they function, monetary policy should be used wisely to provide ample liquidity, ease financial stress of industries and small and medium-sized enterprises, and, if necessary, relax macroprudential regulations temporarily, IMF said.
“Targeted support, combined with domestic demand stimulus in a recovery, will help to reduce scarring, but it needs to reach people and smaller firms,” Rhee wrote.
The Fund has several tools at its disposal to help its members surmount this crisis and limit its human and economic cost, and more than 15 countries from across the region have expressed interest in our two emergency financing instruments—the Rapid Credit Facility and the Rapid Financing Instrument, he added.
“A Short-term Liquidity Line has also been established as part of the Fund’s global financial safety net; it provides a backstop for member countries with very strong policies and fundamentals in need of short-term moderate balance of payments support,” IMF said.
Earlier this week, the IMF in its World Economic Outlook had forecast India's growth rate to be 1.9% in 2020, and had supported India's proactive decision of imposing a nation-wide lockdown. “India entered the pandemic turmoil in the midst of a credit crunch-induced slowdown and its recovery prospect becomes more uncertain. Despite the economic slowdown, the government implemented a nationwide lockdown and we support India's proactive decision,” Rhee had said.