Asia Faces Long Recovery Work: IMF

DIFFICULT ROAD
The IMF has warned nations about the premature withdrawal of fiscal and monetary support as the world economy struggles to recover from the pandemic.

The Asia-Pacific region is likely to see economic output remain below pre-COVID-19 pandemic trends in the medium term, even as China’s recovery leads the rest of the world, the IMF said.

In its latest assessment of the region, the IMF warned of significant downside risks and economic scars as participation in the labor market declines, with the most vulnerable likely to be hit the hardest.

While the Washington-based lender said Asia is slowly emerging from its worst recession, it lowered its forecast for regional growth to minus 2.2 percent this year, 0.6 percentage points less than the forecast it made in June.

The downgrade was mainly due to steeper contractions in India, the Philippines and Malaysia. The fund aims for China to grow 1.9 percent this year.

“Getting back to full capacity will be a long job,” the IMF wrote in its Regional economic outlook report, citing ongoing fears of infection, social distancing measures and border closures that would hit countries that depend on tourism especially.

FIRM SUPPORT

“Not being premature with the withdrawal of both fiscal and monetary support should be on the agenda of policy makers not only in China, but globally,” said the head of the IMF mission in China, Helge Berger, in an interview. on Bloomberg TV.

The IMF’s pessimistic outlook for Asia underscores how difficult the road to recovery would be even in a region that drives global growth and where, in countries like China and South Korea, the virus has largely been contained.

Also hampering recovery is employment, which has been hit much harder than during the global financial crisis, with women and younger workers suffering the most.

Among the supportive measures that governments and central banks can offer to their economies, the IMF said that debt monetization may be an option.

“In some cases where inflation remains low, debt monetization might be appropriate, provided it is well communicated, limited in size, time bound, and implemented within a clear operational framework that preserves independence. from the central bank and don’t hamper monetary policy, “he said.

The crisis has prompted some Asian central banks, such as Bank Indonesia, to buy sovereign debt outright, while others have said it is an option that can be used if necessary.

Critics say the policy risks fueling inflation and undermining the currency in emerging economies, thus eroding the confidence of foreign investors.

GEOPOLITICS

Geopolitical tensions, particularly between the United States and China, may also disrupt the recovery, given Asia’s central role in global value chains, the fund said.

“While China’s recovery may boost regional trade, weak global growth, border closures, and festering tensions over trade, technology and security have worsened prospects for a trade-led recovery in the region.” said the IMF.