Asia’s economic contraction this year will be worse than previously thought as several emerging markets in the region have slowed down sharply while battling the coronavirus outbreak, the International Monetary Fund said on Wednesday.
Asia is forecast to shrink by 2.2% this year, the IMF said in its latest Regional Economic Outlook report for Asia and Pacific. That’s worse than the fund’s June forecast for a 1.6% contraction, and stands in contrast to the IMF’s decision to revise upward the projection for the global economy.
The IMF said the downgrade for Asia’s economy “reflects a sharper contraction, notably in India, the Philippines, and Malaysia.” It added that 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.”
Asia’s economy is expected to rebound by 6.9% in 2021, which is an ugrade of the fund’s June forecast of a 6.6% expansion. Still, the fund said the region’s economic output will likely remain below pre-pandemic levels for some time due to “scarring effects.”
Such effect refers to medium- to long-term damage to economies following a severe shock. The IMF explained how scarring will haunt Asia:
- Fear of infection and social-distancing measures are dimming consumer confidence, which will keep economic activity below capacity until a vaccine is developed;
- Labor market indicators are deteriorating “much more” compared with the global financial crisis, with unemployment surging among women and younger workers;
- Many Asian economies are trade-dependent, but weak global growth, largely closed borders and U.S.-China tensions have worsened the prospects of a trade-led recovery.
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