Divergent Recoveries in Asia: History is not Destiny

IMF Blog, February 23, 2021

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Authors: Davide Furceri, Jonathan D. Ostry, Anthony C.K. Tan
Date: February 23, 2021
IMF’s World Economic Outlook Update: upgraded 2020 growth estimate by 0.7 percentage point from October forecast to a contraction of 1.5 percent.
Projected regional output growth:
- 2021: 7.3 percent
- 2022: 5.3 percent
Range of cumulative output losses (relative to pre-pandemic trajectory):
- Close to zero in China, Japan, and Taiwan PoC
- More than 20 percentage points in the Philippines
- Even 30 points in East Timor
Reference baseline for divergence comparison: IMF’s pre-pandemic (October 2019) forecasts and current cumulative GDP growth projections for 2020, 2021, and 2022.

Health factors
- Early and stringent containment measures (examples: Australia, Vietnam) helped flatten the pandemic curve, avoid overwhelming medical systems, reduce fatalities, and lay the foundation for recovery.
- Rollback of containment only after outbreak stabilization and strong testing/tracing regimes (examples: China, Korea) boosted confidence and supported stronger rebounds.
Magnitude and effectiveness of policy support
- Extensive monetary and fiscal support mitigated economic effects of containment (notable: Japan, New Zealand).
- Targeted fiscal measures (examples: consumption coupons in Korea; cash transfers to casual workers in Australia) supported incomes, reduced infections, and enabled higher medium-term growth.
Economic structure and sectoral dependence
- Heavy dependence on tourism and contact-intensive services amplified losses; tourism suffered most.
- Informal and migrant workers, particularly women and youth, were disproportionately affected due to diminished opportunities and limited social safety nets.
- Countries highly reliant on tourism (examples: Pacific islands, Cambodia, the Philippines, Thailand) experienced stronger negative impacts.
Other structural factors
- High informality, concentrated economic activity, weak transportation infrastructure, limited health sector capacity, and poverty complicated containment enforcement and targeted support (example: Philippines, with high concentration in the Manila metropolitan area).

Despite early recoveries in parts of Asia-Pacific, aggregate output losses from the pandemic remain significant even under projected rebounds.
Labor market deterioration: weakened labor force participation and diminished job prospects for youth and women indicate likely significant scarring.
Divergence is especially sobering for Pacific islands and other low-income countries, where lives and livelihoods depend on additional international support.

Vaccine access and therapies
- Ensure vaccines are widely available to end the pandemic everywhere.
- Speedy distribution and availability of effective therapies are key to stronger consumption, investment, and employment recoveries.
- Support to developing countries in funding, logistics, and administration is crucial to close gaps between developing and advanced economies.
Continued support for workers and businesses
- Policies should continue until recovery is entrenched and private domestic demand is self-sustaining.
- High uncertainty warrants a slower withdrawal of support while remaining vigilant about debt sustainability and financial sector risks.
Economic transformation and reallocation
- Stimulate private sector demand as containment eases; replace broad sectoral assistance with measures that build greener, more inclusive, resilient, and digital economies.
- Use “trampoline” policies (job counseling and retraining) alongside safety nets to protect the most vulnerable and encourage reallocation.
International financial support and cooperation
- Financial assistance from the international community is needed to reverse divergence between rich and poor countries.
- Many low-income economies, including Pacific island countries, will require financial assistance for the foreseeable future.
- Global cooperation via the G-20 Common Framework can help clear a path for countries to restructure unsustainable debt and grow.

IMF Blog — “Divergent Recoveries in Asia: History is not Destiny” — February 23, 2021