Regional Economic Outlook for Asia and Pacific, October 2021

Regional Economic Outlook, October 2021

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Global growth projections:
- 5.9 percent in 2021.
- 4.9 percent in 2022.
- 0.1 percentage point lower for 2021 than in the July 2021 World Economic Outlook Update.
- Projected to moderate to about 3.5 percent over the medium term.
Asian regional outlook:
- Downgraded by more than 1 percent to 6.5 percent for 2021 compared with the April 2021 World Economic Outlook.
- Expected to grow slightly faster in 2022 than anticipated earlier as vaccination rates accelerate.
- Asia and Pacific remains the fastest growing region in the world.
- Divergence is deepening between Asian advanced economies and emerging market and developing economies, reflecting vaccination coverage and policy support.
- Medium-term output levels in emerging market and developing economies are expected to remain below pre-pandemic trends.
Inflation and risks:
- Ongoing rise in inflation is expected to be transitory, though uncertainty remains high.
- Risks are tilted to the downside, mainly because of uncertain pandemic dynamics, vaccine efficacy against virus variants, supply chain disruptions, and potential global financial spillovers from US monetary normalization in the presence of domestic financial vulnerabilities.

First half of 2021 developments:
- Stronger-than-expected global GDP outturns as economies adapted and macro policies remained supportive.
- Advanced economies are forecast to grow 5.6 percent in 2021, led by a rebound in the US and Europe.
- Prospects for emerging market and developing economies have been marked down, especially in Asia, where pandemic resurgence has triggered lockdowns hampering the recovery.
Inflation drivers and outlook:
- Inflation rise driven by rebounding commodity prices and supply-demand mismatches.
- These inflationary pressures are expected to be mostly transitory.

Determinants of vaccine rollouts (based on novel daily data and cross-country evidence):
- Severity of the COVID-19 waves in 2020.
- Procurement strategies.
- Local production of vaccines.
- Quality of the health infrastructure.
- Vaccine acceptance.
Effects of vaccination:
- Swift and broad administration of vaccines can provide a significant boost in economic activity, with the effect increasing over time and when a larger share of population gets vaccinated.
- Improvements in health outcomes are more visible when a country is in the middle of a significant outbreak and containment measures are in place.
- Cross-country health and economic spillovers from COVID-19 infections and vaccine rollouts are sizable, highlighting that the pandemic will not be over anywhere until it is over everywhere and putting a premium on broad access to vaccines.

Trade and GVC integration:
- Trade openness and global value chain integration have stalled in Asia since the global financial crisis, partly reflecting a slower pace of trade liberalization.
Findings from novel index of trade restrictions:
- Nontariff barriers (NTBs) remain high in many Asian emerging markets and developing economies.
- Empirical estimates and model-based simulations indicate significant macroeconomic benefits from reducing such barriers.
- GDP increasing by about 1.6 percent five years after a major reform effort.
Policy implication:
- A renewed push to liberalize trade can invigorate durable growth and minimize post-pandemic scarring, although policies to mitigate the impact of trade reforms on inequality may be needed.

Regional Economic Outlook for Asia and Pacific, October 2021 — IMF

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