The Asian economy is expected to shrink this year “for the first time in memory,” said the International Monetary Fund, warning that the region could take several years to recover.
The fund said in a blog post published Tuesday that the Asian economy is likely to contract 1.6% this year, a downgrade from its previous forecast of no growth in April.
The region is still in better shape compared to other parts of the world, but a weaker global economy has hampered Asia’s growth, Changyong Rhee, head of the IMF’s Asia and Pacific department, told “Squawk Box Asia” of CNBC. on Wednesday.
He said “Asia cannot be an exception” when everyone suffers from the effects of the coronavirus pandemic. Last month, the IMF cut its forecasts for the world economy. He projects that the world economy could shrink 4.9% this year before recovering to grow 5.4% next year.
What we are concerned about in Asia is actually the 2020 recovery.
Changyong Rhee
International Monetary Fund
Asia was the first region affected by coronavirus disease, or Covid-19, that first emerged in the Chinese city of Wuhan. After the virus spread worldwide, many governments imposed measures that restrict people’s interactions and movements, severely reducing economic activity.
Rhee said the Asian economy is expected to rebound strongly to record 6.6% growth next year. But the level of economic activity in the region would still be lower than the IMF had projected before the pandemic, he added.
“What we are concerned about in Asia is the 2020 recovery,” said Rhee.
He explained that the countries of the region have a “strong dependence” on trade, tourism and remittances, segments of the global economy that were affected by the pandemic.
“Even if we develop new medical solutions, the recovery of … contact-intensive sectors will be slow, for example tourism. So I think Asia’s recovery will be prolonged,” he said.
And if there is a second wave of infections in the region, many governments may not have the firepower to support their economies as they did during the first wave, Rhee added.
That is especially true for the region’s emerging economies, which have “relatively limited” policy space to respond to a resurgence of cases, he explained.
“So I wonder if the second wave occurs, if Asian governments can use the same stimulus as in the … first crisis,” he said. “So we have to be more concerned, more cautious.”
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