IMF: Everything you need to know about Asia’s ‘multispeed’ recovery
Despite some signs of rapid growth in some parts of Asia-Pacific, not all countries are bouncing back at the same speed.
This is ‘multispeed’ recovery is outlined in the IMF’s latest Regional Economic Outlook.
The IMF warns it could lead to increased inequality and indebtedness across the region.
The Asia-Pacific region is recovering from its worst recession in living memory. Our latest Regional Economic Outlook shows that a recovery started in the third quarter, but growth engines are not all firing with the same power across countries, leading to a multispeed recovery.
To enable structural change, Asia’s economic policies should be focused on the world of tomorrow, not yesterday.
Reflecting worse-than-expected outturns in the second quarter in a few countries, the IMF’s forecast for the region has been downgraded to -2.2 percent in 2020—the worst outcome for this region in living memory. India’s economy experienced a much sharper than expected contraction in the second quarter—24 percent on a year-over-year basis—and is expected to recover slowly in the coming quarters.
China, which suffered the pandemic’s blow earlier than other countries, has seen a strong recovery after the first quarter lockdown, and growth has been revised up to 1.9 percent this year, a rare positive figure in a sea of negatives. Advanced economies (Australia, Korea, Japan and New Zealand), while still in recession, are expected to do somewhat better than expected in 2020, reflecting a faster pickup in activity following earlier exit from lockdowns.
The good news is that we expect the region to grow by 6.9 percent in 2021. But even with this boost, output will be lower at the end of 2021 than our pre-pandemic projection. The scars will be deep: with declining labor force participation and weak confidence dimming private investment, potential output by the middle of the decade could be some 5 percent lower than before the pandemic.
Lessons and challenges
The Asia-Pacific region went into this crisis first and many of its economies are emerging from it first as well. What lessons can the world learn from this experience?
First, an early public health response, when infection rates were still low, was an essential steppingstone to flattening the virus curve. Second, relaxing containment measures only after the virus has been suppressed—and with appropriate post-lockdown policies (such as testing and contact-tracing) in place—is associated with better economic outcomes. On both counts, Asia has done well in comparison to other regions, probably due to its experience from previous pandemics. Third, fiscal support has also been critical to reduce economic costs and underpin the recovery. Here Asia has pulled its weight with significant policy stimulus.
How the recession affects Asia’s various economies.
Prospects for a global trade-led recovery look dim, because of weak global growth, closed borders, and festering tensions around trade, technology, and security—despite the boost to the region from China’s recovery. Diversifying Asia’s economies away from over-reliance on exports is a work in progress: a fundamental reorientation toward domestic demand will take time and presents an exceptionally difficult challenge for the smallest economies (such as the Pacific islands) and more generally, those reliant on tourism.