## Engines Not Yet in Sync: A Multispeed Recovery in Asia _IMF Blog, October 21, 2020_ ## Source details **Canonical URL:** [Engines Not Yet in Sync: A Multispeed Recovery in Asia](https://www.imf.org/en/blogs/articles/2020/10/21/engines-not-yet-in-sync-a-multispeed-recovery-in-asia) ## Other formats - [Markdown version](/en/blogs/articles/2020/10/21/engines-not-yet-in-sync-a-multispeed-recovery-in-asia/index.md) - [Structured JSON version](/en/blogs/articles/2020/10/21/engines-not-yet-in-sync-a-multispeed-recovery-in-asia/index.json) - [Bundle manifest](/en/blogs/articles/2020/10/21/engines-not-yet-in-sync-a-multispeed-recovery-in-asia/bundle-manifest.json) ## Bibliographic details - Authors: Jonathan D Ostry - Published: October 21, 2020 --- ### Overview and key projections - The IMF’s forecast for the Asia-Pacific region has been downgraded to -2.2 percent in 2020—the worst outcome for this region in living memory. - India’s economy contracted 24 percent on a year-over-year basis in the second quarter and is expected to recover slowly in the coming quarters. - China’s growth has been revised up to 1.9 percent in 2020. - Advanced economies in the region (Australia, Korea, Japan and New Zealand), while still in recession, are expected to do somewhat better in 2020, reflecting a faster pickup in activity following earlier exit from lockdowns. - The region is expected to grow by 6.9 percent in 2021. - Even with 2021 growth, output will be lower at the end of 2021 than pre-pandemic projections. - Potential output by the middle of the decade could be some 5 percent lower than before the pandemic. ### Recovery pattern and dynamics - A recovery started in the third quarter, but growth engines are not all firing with the same power across countries, leading to a multispeed recovery. - Drawn-out recovery risks include declining labor force participation and weak confidence dimming private investment. - China provided a boost to the region by recovering earlier from the pandemic’s blow. - Prospects for a global trade-led recovery look dim due to weak global growth, closed borders, and tensions around trade, technology, and security. - Diversifying away from over-reliance on exports toward domestic demand will take time and is especially difficult for the smallest economies (such as the Pacific islands) and those reliant on tourism. ### Lessons from Asia’s experience - Early public health response, when infection rates were still low, was essential to flattening the virus curve. - Relaxing containment measures only after the virus has been suppressed—and with appropriate post-lockdown policies (such as testing and contact-tracing) in place—is associated with better economic outcomes. - Fiscal support has been critical to reduce economic costs and underpin recovery; Asia has provided significant policy stimulus. ### Risks and vulnerabilities - Rising income and wealth inequality, already increasing before the pandemic, are likely to rise further unless decisive policy action is taken. - Asia’s labor market indicators have deteriorated more than during the Global Financial Crisis, especially for women and younger workers. - Redistributive policies in Asia are limited and the informal sector is large, making it difficult to reach and support the most vulnerable. - High indebtedness makes the region vulnerable to financial turbulence: - Unprecedented portfolio capital outflows at the beginning of the pandemic have stabilized, but net outflows remain large compared to pre-pandemic levels. - A renewed bout of tighter global financial conditions could worsen credit risks, aggravate weak public and private sector balance sheets, and potentially push vulnerable countries into a debt crisis. - The health crisis remains far from over; sustaining strong health policies is the first priority. ### Policy recommendations and priorities - Sustain strong health measures: timely testing, effective contact tracing, increases in hospital capacity, and improved healthcare systems remain priorities, especially for emerging markets and low-income countries in the region. - Plan now to secure and quickly distribute vaccine supplies when they become available, with multilateral support as needed. - Do not withdraw fiscal and monetary support prematurely—that is, before the recovery gains traction. - Protect the most vulnerable through better targeting of fiscal support, especially to youth and women who have taken the biggest hit. - Maintain vigilance against emerging credit risks in corporates and households given potential impacts on financial institutions. - Address unsustainable public debt proactively, since delays are very costly historically. - Facilitate corporate restructuring and resource reallocation to enable structural change and reorient toward sectors that will support stronger medium-run inclusive green growth. - Prioritize economic policies “laser-focused on the world of tomorrow, not yesterday” to enable structural change. ### Concluding assessment - The region has the wherewithal to craft a better future for its citizens. - With the right policies and international support when needed, Asia’s engines can work together again and power the region ahead. - The IMF stands ready to support economies across Asia and the Pacific with financing, policy advice, and capacity development tailored to diverse needs in the region. *Source: Engines Not Yet in Sync: A Multispeed Recovery in Asia, Jonathan D. Ostry, October 21, 2020.* --- ## References - [Regional Economic Outlook](https://www.imf.org/en/Publications/REO/APAC/Issues/2020/10/21/regional-economic-outlook-apd) - [public health response](https://blogs.imf.org/2020/06/02/how-the-great-lockdown-saved-lives/) - [rise further](https://blogs.imf.org/2020/05/11/how-pandemics-leave-the-poor-even-farther-behind/) - [youth and women, who have taken the biggest hit](https://www.imf.org/en/Publications/WP/Issues/2020/10/16/COVID-19-and-Inequality-in-Asia-Breaking-the-Vicious-Cycle-49807) - [social unrest](https://www.imf.org/en/Publications/WP/Issues/2020/10/16/A-Vicious-Cycle-How-Pandemics-Lead-to-Economic-Despair-and-Social-Unrest-49806) - [delays are very costly](https://www.imf.org/en/News/Articles/2020/10/01/sp100120-resolving-global-debt-an-urgent-collective-action-cause) _Source: https://www.imf.org/en/blogs/articles/2020/10/21/engines-not-yet-in-sync-a-multispeed-recovery-in-asia_