Transcript of April 2021 Asia and Pacific Department Press Briefing

IMF News, April 14, 2021

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Published: April 14, 2021

Regional outlook and aggregate projections

The pandemic caused "unprecedented output losses" in the Asia Pacific region with wide variation across economies depending on containment stringency, tourism dependence, and policy support.
“Although a recovery is now underway,” outbreaks continued in some countries, notably India and some ASEAN economies.
Regional growth forecasts (IMF Regional Economic Outlook highlights cited):
- Regional growth: "just above seven and a half percent this year, and just short of five and a half percent next year."
- Trade and manufacturing generally held up due to global demand for pandemic-related supplies; services recovery is slower, increasing sectoral divergence.
Divergence dimensions: across countries, within countries, across sectors, age groups, gender, and skill level — risking entrenchment of excessive inequality.

Country-level forecasts and notable country notes

China: growth "marked up to 8.4 percent this year," driven by stronger net exports reflecting higher global growth and the U.S. fiscal stimulus.
India: growth "marked up... to 12 and a half percent," on normalization and a more growth-friendly fiscal policy; current surge in infections is a notable downside risk.
Australia: growth revised up to "four and a half percent" given better-than-expected Q4 outturn and healthier domestic demand.
Japan: growth in 2021 projected at "3.3 percent," and "two and a half percent" next year, aided by unprecedented domestic policy support and favorable external conditions.
Korea: growth should pick up to "3.6 percent this year," and moderate to "2.8 percent in 2022," driven by favorable external environment and manufacturing/exports.
ASIAN economies (subset): growth "marked down to 4.5 percent" due to high COVID-19 caseloads in Indonesia, Malaysia, and the Philippines and subdued tourism affecting Cambodia, Laos, and Thailand.
Myanmar: coup expected to have "a devastating impact on livelihoods, that could last well into the medium term."
South Asia (excluding India): recovering, led by Bangladesh, due to higher-than-expected exports and remittances despite recent infection spikes.
Maldives, Nepal, Sri Lanka: outlooks affected by weak tourism and limited policy space.
Pacific Island countries: hit hard by tourism collapse, natural disaster and climate risks, high debt, diminished policy space, and dwindling correspondent banking relationships.
Vietnam: 2020 growth "2.91 percent" and Q1 2021 growth "4.48 percent"; IMF projects for 2021 growth "on the order of 6 or 7 percent."
Nepal: 2020 projection cited as "2.9 percent" (question noted); IMF considers 2021 projections reasonable due to expected rebound in non-tourism sectors.

Risks, uncertainty, and external environment

Main downside risks:
- Setbacks in vaccine rollout, vaccine potency against new variants, and virus resurgence.
- If U.S. yields rise faster than markets expect or communication errors on U.S. monetary policy occur, adverse spillovers could resemble the 2013 "Taper Tantrum."
External drivers:
- U.S. fiscal expansion provides trade spillovers to export-oriented Asian economies but also contributes to rising U.S. interest rates and spillovers to Asian emerging markets.
Financial resilience factors:
- Reduced share of foreign holdings of Asia’s government debt, larger official reserve holdings, more flexible exchange rates, stronger bank supervision, and better-anchored inflation expectations should help dampen shocks.
Leverage concern:
- Increase in leverage across government, household, and corporate balance sheets means higher borrowing costs would be harmful when they occur.

Vaccine rollout and global cooperation

Priority: ensure vaccines are widely available and overcome vaccine hesitancy; "boosting vaccine supply and administration capacity are essential to underpin the recovery."
International cooperation needed for adequate vaccine production and universal distribution at affordable prices.
Commendation: "the efforts of China and India have been commendable," with hope they continue supplying others while ensuring domestic needs.
Economic impact: "a faster universal rollout of vaccines would add something on the order of $9 trillion to the global economy."

Trade, supply chains, and technology tensions

Trade collapsed in 2020 mainly due to the pandemic; expected to rebound this year and post reasonable medium-term growth.
U.S.-China tariffs estimated to have inflicted costs of "something just short of a half a percent of global GDP."
On bifurcation/decoupling:
- IMF "doesn't see much evidence of this bifurcation" yet and cautions that technological decoupling would be far more costly—potentially "an order of magnitude larger" in extreme cases—by reducing productivity and knowledge diffusion.
RCEP and regional trade:
- RCEP brings China, Japan, and Korea into a common agreement for the first time; while not as deep as other agreements, it can deepen trade and has signaling benefits.
- Static gains estimated as relatively small in some studies, but dynamic gains through investment may be larger over time.

Policy recommendations — near-term and medium-term

Short-term macro policy:
- Fiscal support targeted toward vulnerable groups should remain accommodative "until private demand recovers."
- Broad lifelines should be phased out only gradually as the pandemic recedes; future support should aim at reallocating resources to "new, dynamic, green, and digital sectors."
- Monetary policy should remain data dependent and attentive to macroeconomic and financial stability risks.
- Anchor public debt within credible medium-term frameworks, especially where fiscal space and buffers are eroded.
- Use multiple instruments, including macroprudential tools, to safeguard macrofinancial stability amid possible renewed capital outflows and housing market risks.
Debt and solvency:
- Pivot from pandemic liquidity support to solvency support: facilitate balance sheet repair, allow nonviable (zombie) firms to exit, and enable dynamic entrants and fresh equity capital.
- Strengthen insolvency frameworks to allow exit of nonviable firms while assuring adequate credit flow to productive firms.
Structural reforms (three imperatives):

1. Reduce trade restrictions that impede trade (tariffs and non-tariff barriers such as quotas, subsidies, local content rules, licensing requirements). 2. Address corporate debt vulnerabilities—especially among SMEs—by shifting support toward solvency and restructuring. 3. Accelerate the green transition through increased investment in green technologies and higher carbon prices; policies must consider political economy and distributional impacts with safety nets and "trampoline" policies for workers transitioning sectors.

Green agenda and climate finance

Asia includes major emitters (China, India, Japan, Indonesia, Korea) and highly vulnerable countries (e.g., Pacific Islands).
Noted commitments: several large emitters have committed to carbon neutrality in 2050 or 2060, including China.
Early measures observed: China’s Coal Tax and National Emission Trading Schemes; Japan’s Third Supplementary Budget investments; Korea’s Korean New Deal with green components; India’s recommitment to Paris Accords.
Jobs and growth potential: combination of higher carbon prices and green investments could produce "millions of jobs, perhaps on the order of 12 million jobs over a decade, and large gains to global GDP."
Financing needs for adaptation and mitigation: average needs "on the order of 3 percent of GDP" for some countries, but for some smaller Pacific Islands "easily in the double-digit percent of GDP"; international grants and highly-concessional climate financing are needed.

Labor, automation, and inclusiveness

Pandemic-accelerated automation and digital adoption can expand productivity but risk leaving low-skilled, informal, youth, and female workers behind.
Policy prescriptions:
- Strengthen social safety nets.
- Implement "trampoline" policies: education, skill development, life-long learning to facilitate worker transitions into digital and green sectors.
Risk of neglecting human costs: rising inequality could lead to social unrest and fragile, non-inclusive growth.

Financial stability, housing, and macroprudential stance

Household debt and housing market risks noted in some countries (e.g., Korea), but macroprudential measures have helped contain financial stability risks.
IMF view: do not raise interest rates preemptively to address financial stability issues; prefer targeted macroprudential tools.

Q&A highlights (selection)

Supply chains: IMF sees limited evidence so far of bifurcation; urges reinvigorating multilateral, rules-based systems to avoid damaging technological decoupling.
Trade agreements: RCEP is a welcome, signaling step that can deepen regional trade; further liberalization in e-commerce, services, and investment remains desirable.
Vaccination passports and tourism: IMF emphasizes accelerating vaccine rollout as the primary priority; COVID protocols and country examples (e.g., Maldives rebound, Australia–New Zealand travel bubbles) affect tourism reopening; IMF has no firm recommendation on passports in the briefing.
Vietnam: praised for effective early containment; policy advice includes continued vaccine rollout, support for vulnerable groups, strengthening tax/revenue capacity, resilient financial system, and private-investment-friendly structural reforms.
Bangladesh: recommendation to sustain support for vulnerable populations, agriculture, and to strengthen fiscal revenue capacity while coordinating with development partners.
Korea monetary policy: current interest rate level "remains appropriate" given substantial slack and muted inflation; use macroprudential policies rather than rate hikes to address housing/financial stability risks.

Transcript of April 14, 2021 Asia and Pacific Department press briefing (IMF Communications Department).