The International Monetary Fund or IMF predicts that the Asian economy will experience contraction and wane this year “for the first time in living memory.”
IMF believes that recovery may take years, adding that the Asian economy may have contraction by 1.6% this year. This is a downgrade from its last prediction of no growth in April.
During an interview with CNBC’s “Squawk Box Asia,” Changyong Rhee, director of the Asia and Pacific department at IMF, explained that the region remains in a better shape compared to other parts of the world. However, Asia’s growth becomes difficult due to a weaker global economy.
He noted that “Asia cannot be an exception” when the whole world is absorbing the economic damage brought by the coronavirus pandemic. The IMF last month reduced its forecasts for the global economy. It could decline by 4.9% this year before recuperating to increase by 5.4% next year, according to Rhee.
Moreover, Rhee pointed out that the economy of Asia would recover strongly to make a 6.6% growth next year. But he stressed the level of economic activity in the region being lower than what IMF had predicted before the pandemic.
“What we are worried about Asia is actually the recovery from 2020,” said Rhee. He explained that countries in the region have a “heavy dependence” on tourism, trade, and remittances. These are areas in the global economy that were hit hard by the pandemic.
“Even if we develop new medical solutions, the recovery of ... contact-intensive sectors will be slow, tourism for example. So because of that, I think Asia’s recovery will be protracted,” he said.
Rhee added that even if there is a second wave of infections in the region, many governments may not be able to shore up their economies like they did during the first wave.
He emphasized this as the situation for the region’s emerging economies, which have “relatively limited” policy space to address a resurgence of coronavirus cases.
“So I wonder, if the second wave happens, whether the Asian governments can use the same stimulus as in the ... first crisis,” he said. “So we have to be more concerned, more cautious.”
Global economic recovery
The IMF previously said that the global economy may not recover from the coronavirus outbreak next year.
The fund suggests that the global economy will plunge by 3% this year before recuperating by 5.8% next year. Gopinath describes this rebound as a “partial recovery.”
“We have a recovery projected for 2021 of 5.8% growth, but that is a partial recovery,” Gopinath told CNBC’s “Squawk Box Asia” on Friday.
“So even by the end of 2021, we’re expecting level of economic activity to be below what we had projected before the virus,” she noted.
Meanwhile, the economic damages brought by the coronavirus pandemic can push half a billion people into poverty, according to the new report released by Oxfam.
“I think if you compare that to the global financial crisis … the response has been just that much speedier and the scale of it has been that much bigger,” she said, noting that economies around the world have announced about $8 trillion worth of fiscael stimulus.
