IMF sees 7.6% AsPac rebound in 2021 but marked with wide divergence

IMF sees 7.6% AsPac rebound in 2021 but marked with wide divergence

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  • Asia Pacific will grow 7.6% this year and 5.4% next year, but with broad differences across countries and sectors
  • Exports and manufacturing have benefited from surging global demand for pandemic-related supplies, but services is mostly languishing
  • Emerging markets Indonesia, Malaysia, and the Philippines are contending with increased coronavirus cases and renewed lockdowns, and therefore face a weaker recovery
  • For export-oriented economies in Asia with strong linkages to the United States, the US fiscal expansion will provide positive trade spillovers

The Asia Pacific region will grow 7.6% this year and 5.4% next year, but the welcome rebound from last year’s contraction masks wide differences within and across countries, said the International Monetary Fund (IMF) in its latest regional outlook.

Overall, exports and manufacturing have benefited from surging global demand for pandemic-related supplies, but economies more dependent on services are mostly languishing, adding to sectoral divergence, IMF said.

Although a recovery is now underway and the pandemic is receding in some countries, second and third waves of infections are raging elsewhere, notably in India and some of the ASEAN economies.

Divergence in economic growth is likely to persist in the region, observed Jonathan Ostry, IMF deputy director for Asia and Pacific, in a press briefing.

For China, growth has been revised up to 8.4% this year due to stronger net exports, reflecting higher global growth and the US fiscal stimulus.

India has seen a more sizeable upward revision, to 12.5%, amid continued normalization of its economy and a more growth-friendly fiscal policy. But the current surge in infections presents a worrisome downside risk.

Despite the recent spike in infections, South Asia, excluding India, is recovering, led by Bangladesh, due to higher-than-expected exports and remittances.

Advanced economies (Australia, Japan, and South Korea) are also benefiting from positive growth surprises late last year, strong policy responses, and spillovers from the large US fiscal package.

In contrast, some emerging markets, notably Indonesia, Malaysia, and the Philippines, are contending with increased coronavirus cases and renewed lockdowns, and therefore face a weaker recovery.

The outlook for tourism is also expected to remain subdued, affecting prospects in Cambodia, Laos, and Thailand. Outlooks in Maldives, Nepal, and Sri Lanka are affected by weak tourism and limited policy space.

In Myanmar, the coup will have a devastating impact on livelihoods and lives that could last well into the medium term.

The changing external environment is a central driver of risk in the region. For export-oriented economies in Asia with strong linkages to the United States, the US fiscal expansion will provide positive spillovers through the trade channel. But Asia could experience financial turbulence or capital outflows if US yields rise faster than markets expect.

“Everywhere, the pandemic has inflicted historic income losses borne mostly by the less advantaged: low-wage and informal workers, as well as youth and women. A region known for its trademark growth-with-equity model now runs the risk of entrenching excessive inequality. If policymakers do not act, they risk stunted opportunities, fragile growth, and even social unrest,” said IMF.

Photo by Alejandro Cartagena

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