Coronavirus (COVID-19) Impact to Asian Economies

As the world faces the worst recession since the great depression of 1930 due to the COVID 19 crisis, the Asian countries are not immune to this crisis as their growth performance is expected to stall at zero per cent in 2020.

According to the director of the IMF’s Asia and Pacific Development, Chang Yong Rhee said the region would experience zero growth for the first time since the 1960s as the Asia region faces “a crisis like no other” due to the pandemic.

COVID-19 has killed over 136,000 people worldwide and has prompted governments to impose lockdowns. This measure, however, has not only hampered commerce but affected economies.

COVID-19 World Map (source: johns hopkins university covid-19 map)

Although Asia is about to fare better than other regions suffering economic contractions, the projection is worse than the 4.7 per cent average growth rates throughout the worldwide financial crisis. The 1.3 per cent increase during the Asian financial crisis in the late 1990s, said IMF.

The IMF, however, expects a 7.6 per cent expansion in Asian economic growth by 2021 on the assumption that the containment policies succeed. Still, the outlook was highly uncertain because the region’s export powerhouses were also taking a battering from slumping demand for their goods by key trading partners such as the United States and European countries.

According to IMF’s forecast in January, China’s economy is expected to grow by 1.2 per cent this year, from 6 per cent growth, due to weak exports and losses in domestic activity (because of the social distancing policy). However, the world’s second-largest economy is expected to see a rebound in operation later this year, with growth bouncing back to 9.2 percent next year, said IMF.

There were risks even to China’s growth outlook, said IMF, as the virus could return and delay normalization.

IMF - International Monetary Fund

Chang Yong Rhee warned that the impact of the coronavirus would be severe, across the board, and unprecedented so the governments would need to embark on extraordinary actions as this is not a time for business. Asian countries need to use all policy instruments in their toolkits, he said.

Asian policymakers are advised to offer targeted support to households and firms which are hit hardest by the travel bans, social distancing and other measures put in place to contain the pandemic, said IMF.

Monetary policy should be used wisely to provide ample liquidity, ease the financial stress of industries and small and medium-sized enterprises, and, if necessary, macroprudential regulations should be relaxed temporarily. 

Asian countries – rather than implementing the US stimulus package of directly transferring cash to their citizens – should focus on preventing small firms from going under to stop the increasing rate of unemployment.

Where needed, emerging economies in the region, as said by the IMF, should tap bilateral and multilateral swap lines and seek financial support from multilateral institutions.

In the absence of swap lines, foreign exchange market inventions, and the use of capital controls may be the alternatives employed to battle any disruptive capital outflows caused by the pandemic.