Asia’s economic growth will grind to a halt for the first time in 60 years of postwar development because of the unprecedented impact of coronavirus, the IMF has warned.
Speaking at a briefing on the regional economic outlook, Chang Yong Rhee, the IMF’s Asia director, warned that the slowdown would be worse than the global financial crisis of 2008-09 and the Asian financial crisis of 1997.
But the IMF still expects Asia to fare better than Europe or the US, reflecting China’s success in bringing the coronavirus under control and the region’s underlying growth prospects.
“The impact of the coronavirus on the region will be severe, across the board and unprecedented,” said Mr Rhee. “Unlike during the global financial crisis, Asia’s real sector, especially the service sector, is being hit hard by containment measures of the coronavirus pandemic.”
The IMF forecast 1.2 per cent growth in China during 2020 and cautioned that Beijing would struggle to mount a stimulus on the same scale as it did during the 2009 crisis. “This time China may not be able to bail out Asia’s growth rate,” said Mr Rhee.
For India, the region’s other giant economy, the IMF cut its forecast to 1.9 per cent but endorsed prime minister Narendra Modi’s decision to enforce a nationwide lockdown.
“India entered the pandemic turmoil in the midst of a credit crunch induced slowdown,” said Mr Rhee. He warned that the nation’s recovery prospects were uncertain.
The region’s advanced economies are forecast to be the hardest hit. The IMF expects Japan’s economy to contract by 5.2 per cent this year and Australia’s by 6.7 per cent.
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South Korea’s economy is forecast to shrink by only 1.2 per cent, showing the economic value of its strategy to control the coronavirus outbreak with aggressive testing.
“They contained the virus relatively quickly and that allowed them to have a partial lockdown compared with the complete lockdown in other advanced economies,” said Mr Rhee.
But he warned that Korea’s reliance on exports meant it would struggle to shake off weakness elsewhere.
Mr Rhee endorsed capital controls for Asian economies — a contentious topic for the IMF — if they are needed to allow an aggressive domestic stimulus. Developing economies risk capital flight if they slash interest rates or run large fiscal deficits. Capital controls can prevent that, but at the cost of fragmenting the global economy.
“I think there is room for capital flow measures . . . as a prerequisite for many Asian economies to use more aggressive domestic policies to prevent large, lasting impacts on their economic structure,” said Mr Rhee. He said capital controls should be an exceptional and temporary measure.
The IMF argued that Asia could still enjoy a quick recovery from the crisis but only if the virus outbreak is brought under control around the world.
“For 2021, there is hope: if containment policies succeed, we will see a rebound in growth,” said Mr Rhee. “However, it is highly uncertain how this year will progress.”