Transcript of Press Briefing on the October 2020 Asia Pacific Regional Economic Outlook
IMF News, October 21, 2020
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- Published: October 21, 2020
Regional overview and headline projections
- The Asia-Pacific region has been hit hard by the pandemic, with regional growth projected at -2.2 percent for 2020.
- 2020 "will be remembered as the most severe contraction in generations."
- 2021 projection: 6.9 percent growth for the region.
- Despite the 2021 rebound, "a number of economies will still be smaller in the end of 2021, than before the pandemic."
- Economic scarring: projections suggest potential output by the middle of this decade could be some 5 percent lower than before the pandemic.
Key country outcomes highlighted
- India:
- Second quarter national accounts: economy shrank by an unprecedented 24 percent year-on-year in Q2.
- Projected contraction of 10.3 percent this fiscal year.
- China:
- Suffered the pandemic earlier and has seen a strong recovery.
- Growth revised up to 1.9 percent for 2020.
- In the first three quarters, China grew 0.7 percent from a year ago (as noted in Q&A).
- China’s near-term rebound is generating positive spillovers for the region, especially via commodity prices and global value chains; much of China’s export boost has been in medical equipment and home electronics.
- Cambodia:
- IMF revised projection to minus 2.8 percent for 2020 (noted in Q&A).
- Projected rebound to 5.6 percent in 2021.
- Key near-term drags: collapse in tourism and order cancellations affecting garment exports.
- Nepal:
- Fund projected 2.5 percent growth in the current Fiscal Year (question context).
- Remittances are volatile and future flows depend on conditions in source countries (India, Malaysia, GCC).
- Fiji and Pacific Islands:
- Among the hardest hit in the region, mainly because of dependence on tourism which has effectively halted.
- Recovery speed uncertain; likely a longer ascent given limited diversification and remoteness.
- Japan:
- Olympic-related infrastructure largely completed; delayed or scaled-back Olympics likely to have a quantitatively small effect on aggregate GDP.
- Policy priorities include sustaining health containment and measures to support incomes (monetary action, incomes policy, minimum/ administered wages).
Three lessons from Asia’s pandemic experience
- Early public health response, when infection rates are low, appears essential to flatten the virus curve.
- Relaxing containment measures only after the virus has been suppressed—and with complementary policies such as broad testing and contact tracing capacity—tends to be associated with better economic outcomes.
- Fiscal support has been critical to reduce economic costs and underpin recovery; Asia’s share of announced stimulus is broadly in line with its weight in the global economy.
Four major challenges facing Asia
- Labor market damage:
- Labor markets hit hard, especially female and younger workers.
- Rising inequality predated the crisis; the pandemic hits those at the bottom harder.
- Large informal sectors and limited social safety nets impede support to the most vulnerable.
- Robotization may displace more lower-skilled workers, potentially increasing inequality and social unrest.
- Geopolitical trade and technology tensions:
- Threaten Asia’s export-driven growth model.
- Further decoupling across global technology hubs would have serious implications for the region’s growth potential.
- Private-sector leverage:
- Corporate and household sectors entered the crisis with high leverage; the crisis amplifies this vulnerability.
- Vigilance against emerging credit risks is essential.
- Public debt burdens:
- Public debt is a concern for a number of emerging markets and low-income countries in the region; unsustainable public debt should be addressed proactively.
Policy messages and recommendations (five key messages)
- 1) Do not withdraw macroeconomic policy support prematurely: both fiscal and monetary policy should continue to support recovery.
- 2) Better target fiscal support to protect the most vulnerable: youth, women, and informal workers; targeted support provides bigger bang for the buck given scarce fiscal space.
- 3) Remain vigilant against emerging credit risks from corporates and households to protect financial institutions, particularly if downside growth risks materialize.
- 4) Address unsustainable public debt proactively: history shows delays in addressing debt problems increase costs over time.
- 5) Implement structural policies geared to the world of tomorrow: facilitate corporate restructuring and resource allocation toward sectors that will drive stronger medium-run inclusive, green growth.
Supply chains, uncertainty, and multilateral considerations
- The pandemic is reshaping global and regional supply chains amid "maximum uncertainty."
- Near-term private investment is weak due to uncertainty across pandemic, trade, geopolitics, and technology.
- The region would benefit from multilaterally based, rules-based solutions for trade and technology to reduce uncertainty and support investment decisions and global value chain configuration.
Social outcomes and poverty
- The pandemic is likely to push very large numbers into extreme poverty, reversing gains made over many years; many additions may be in South Asia.
- Growth pickup alone will not be sufficient to reverse increases in extreme poverty; targeted fiscal measures are urgently needed to reach those at risk.
- Rising inequality—already present in Asia before the pandemic—could, if unchecked, undercut sustainable growth and raise social unrest risks.
Selected country-specific policy advice (summarized)
- Vietnam: early, bold, and proactive containment measures helped enable an earlier reopening and stronger rebound; continue proactive health responses and targeted support for the vulnerable.
- Japan: sustain health measures, continue monetary efforts to underpin positive price-wage dynamics, and consider incomes policies alongside minimum and administered wage settings.
- Cambodia: prioritize fiscal expenditure targeting the most vulnerable; recovery contingent on baseline global demand recovery for garments and some tourism return.
- Nepal: prioritize flattening the curve, protect vulnerable groups, and monitor remittance sources closely.
- Fiji/Pacific Islands: face steep recovery challenges due to tourism dependence, limited diversification, and remoteness; require tailored fiscal and financial support.
- Philippines/Indonesia/India (and similar cases): no firm economic recovery foundation exists amid an uncontrolled pandemic—flattening the virus curve is a prerequisite for a sustained recovery.
Transcript of Press Briefing on the October 2020 Asia Pacific Regional Economic Outlook, October 21, 2020, IMF Communications Department