Navigating the Pandemic: A Multispeed Recovery in Asia

Asia and Pacific Region, October 21, 2020

Source details

Global growth is projected at −4.4 percent in 2020, revised up by 0.6 percentage points since the June 2020 World Economic Outlook (WEO) Update because of better-than-expected second quarter outturns.
Global growth is projected at 5.2 percent in 2021, 0.3 percentage point lower than projected in June 2020, reflecting the persistence of social distancing into 2021.
The Asia and Pacific region:
- Economic activity is expected to contract by −2.2 percent in 2020.
- Economic activity is expected to grow by 6.9 percent in 2021.
- These projections are −0.6 percentage point and +0.3 percentage point different, respectively, from the June 2020 WEO Update.

The outlook varies by country depending on:
- Infection rates and containment measures.
- The scale and effectiveness of the policy response.
- Reliance on contact-intensive activities.
- Reliance on external demand.
In parts of Asia where virus transmission rates are low, mobility and activity could normalize faster than elsewhere.
Scarring is likely over the medium term as labor market participation has fallen; output is expected to remain below pre-pandemic trends, with the most vulnerable in society likely to be hit the hardest.
The recovery is tentative and highly uncertain, with significant downside risks.

Analysis uses real-time containment measures implemented by 129 countries (Deb and others 2020a; 2020b) with daily infection and fatality data plus high-frequency indicators of economic activity (for example, NO2 emissions).
Findings:
- Containment measures have been effective in flattening the pandemic curve.
- Very stringent containment measures in New Zealand (international travel ban; early restrictions on gatherings and public events; quick school and workplace closures; stay-at-home orders) are likely to have reduced the number of infections by almost 90 percent relative to a baseline of no containment measures.
- Containment measures are associated with a strong decline in mobility and were more effective where de facto mobility was curtailed the most, whether from compliance or voluntary social distancing (October 2020 World Economic Outlook, Chapter 2).
- Flattening the pandemic curve helped prevent medical systems from being overwhelmed, reduced fatalities, and laid the foundation for recovery and medium-term growth (Barro and others 2020).

High-frequency labor surveys indicate that inequality is increasing during the COVID-19 pandemic because job losses have been concentrated among low-income workers.
Experience from past pandemics suggests adverse distributional effects could be larger in the medium term, including displacement of low-skilled workers by robots, which could undermine social cohesion—especially in countries with already high inequality.
IMF Policy Tracker information shows many Asian governments have implemented significant fiscal policy measures to protect the most vulnerable; the impact depends on:
- Initial coverage of safety nets.
- Fiscal space.
- Degree of informality and digitalization.
Policy guidance from model-based analysis:
- Policies targeted to where needs are greatest are effective in mitigating adverse distributional consequences.
- Targeted policies underpin overall economic activity and support virus containment.
- There is no one-size-fits-all solution; design must account for country-specific institutional and fiscal constraints.

Source: Navigating the Pandemic: A Multispeed Recovery in Asia