Asia-Pacific shares declined following the forecast downgrade made by the International Monetary Fund (IMF) for the region.
Japan's Nikkei 225 dropped by 0.74% while the Topix index declined by 1.1%. Shares of ANA Holdings fell about 5% after the emergence of reports that the airline would post multi-billion dollar losses for the fiscal year to March. Japan Airlines experienced a 2.8% decline in stocks.
Reports on Asia-Pacific shares show that Mainland Chinese stocks dropped by the afternoon, with the Shanghai composite falling by 0.83%. The Shenzhen component lost 0.941%. Hong Kong’s Hang Seng index also dropped by 0.22%.
South Korea’s Kospi lowered by 0.94%. Shares in Australia also declined, with the S&P/ASX 200 down 0.3%.
Falling Asia-Pacific shares
The IMF said Asia’s economy will shrink more this year due to the slowdown in several markets.
The organization pointed out that the region could shrink by 2.2% in 2020. This is considered worse than the fund’s June prediction for a 1.6% contraction and does not reflect the IMF’s decision to revise upward the global economic forecast.
According to its latest Regional Economic Outlook report for Asia and Pacific, the downgrade for Asia’s economy “reflects a sharper contraction, notably in India, the Philippines, and Malaysia.” Moreover, India and the Philippines experienced a “particularly sharp” drop in economic activity in the second quarter, “given the continued rise in virus cases and extended lockdowns.”
IMF’s data show that India could fall by 10.3% in the fiscal year ending March 31, 2021, while the Philippine economy could contract 8.3% in the calendar year 2020, much more than the predicted 3.6% contraction in June.
Malaysia is predicted to shrink by 6% this year, worse than the June forecast of a 3.8% contraction.
However, China did not get any forecast downgrade. The Fund even upgraded its 2020 growth prediction for China to 1.9% from its June forecast of 1% because of “a faster-than-expected rebound in the second quarter.”
China is one of the few Asian economies that would experience growth this year. The IMF pointed out that China’s economic activity in the region is moving at “multiple speeds,” with the country leading the recovery.
“After hitting a trough in February 2020, China’s growth received a boost from infrastructure, real estate investment, and a surge in exports, mainly of medical and protective equipment, as well as work-from-home-related electronics,” the IMF said in its report.
“This is being followed by a gradual recovery in private non-housing investment and consumption.”
China’s economic growth may soar by 8.2%, based on the fund’s forecast.
Impact of Covid on Asia
“This is a crisis like no other. It is worse than the Global Financial Crisis, and Asia is not immune,” wrote Chang Yong Rhee, director of the Asia and Pacific Department at the IMF, in a blog post published in April.
“While there is huge uncertainty about 2020 growth prospects, and even more so about the 2021 outlook, the impact of the coronavirus on the region will — across the board — be severe and unprecedented,” he added.
Asia is considered to be one of the fastest-growing regions in the world. Before the coronavirus, the Asian financial crisis in 1997 and the global financial crisis in 2008-2009 did not deter Asia’s economy. It still recorded average growth rates of 1.3% and 4.7%, respectively, according to IMF.
Asia “looks to fare better than other regions in terms of activity,” Rhee wrote in the blog post. He pointed out that Asia’s economy could recover strongly in 2021 if measures to fight the virus and stimulus to shore up the economy become effective.
“But there is no room for complacency,” he said.
“The region is experiencing different stages of the pandemic. China’s economy is beginning to get back to work, other economies are imposing tighter lockdowns, and some are experiencing a second wave of virus infections. Much depends on the spread of the virus and on how policies respond.”
