Doors of the IMF headquarters building are closed in Washington, DC, where meetings are virtual. The IMF says Covid vaccines offer hope of an uptick in growth. Photo: Eric Baradat/AFP

Asia, home to 60% of the world’s population, may be clawing out of recession but growth expectations remain tepid, prompting the International Monetary Fund (IMF) to downgrade the continent’s economic forecast for 2020.

Asia’s economy will contract by 2.2%, 0.6 percentage points lower than its June forecast, as some countries such as China contain Covid-19 while others including India, the Philippines and Indonesia struggle to flatten the pandemic curve, the IMF said in its Asia Pacific economic outlook.

With 12.8 million cases, Asia has 31% of the 41.5 million cases globally. India with 7.7 million cases follows the worst-affected United States which is grappling with 8.6 million cases. Brazil follows with 5.3 million and Europe, which faces a second wave, has 7.5 million.

China, which has managed to contain cases to fewer than 100,000, is projected to grow 1.9% in 2020 by IMF estimates, compared with 1% in its June projection. The Chinese economy posted 3.2% growth in the second quarter after contracting 6.8% in the first three months because of Covid-19 and lockdowns.

China said its economy grew 4.9% in the third quarter ended September 30. Infrastructure, real estate investment, a surge in exports mainly of medical and protective equipment and work-from-home-related electronics helped lift growth.

Japanese and Indian economies are projected to contract by 5.3% and 10.3% in the full year. IMF estimates may vary from a country’s internal projections because of data and timeframe differences.

However, unlike Asia, the global economy has begun to pick up after a sharp contraction in the second quarter of 2020 as many lockdown restrictions were lifted and replaced with focused containment measures. Projections were revised upwards because of better than expected economic activity in the second quarter, especially in developed countries.  

Global economy may contract by 4.4% in 2020, better than the 4.9% contraction forecast in June. A key reason the global economy can’t grow at or near its potential is the likelihood of social distancing continuing into 2021, hindering production.

Bangladesh emerged as an unlikely winner of most optimistic outlook with 3.8% growth likely in 2020, helped by its vast cheap labor helping export low-priced apparel.

Vaccines against the virus remain a key positive, offering hope of a quick upside to growth. Medical and policy experts expect vaccines to start being registered for final testing, trial and approval by the end of the year. Availability of the vaccines is estimated between April and June of 2021.

Despite a sanguine outlook, the IMF says the forecasts remain highly uncertain with significant downsides.  

“A resurgence of the pandemic can’t be ruled out, and geopolitical tensions, particularly between the US and China, may also derail the recovery,’’ it said.

“A rise in social unrest triggered by the pandemic’s disproportionate impact on the poorest and most vulnerable could compromise recent hard-won gains, or a return to risk-aversion in financial markets could add to balance sheet vulnerabilities.’’

Still, any recovery in Asia Pacific will likely be sluggish, and output may remain below the pre-pandemic level. The IMF has projected the region to grow by 6.9% in 2021, which is 0.3% higher than projected in June but implies a drop in the 2021 output level envisaged earlier.

A key impact of the pandemic is scarring of the labor market with elevated levels of joblessness and plunging labor participation, especially of women and younger workers.  

Countries dependent on tourism, remittances and commodities will remain very vulnerable. Global trade-led recovery remains uncertain, though recovery of Chinese growth could help boost trade in Asia. Still, weak growth, closed borders and tensions around trade, technology and security make it tougher for a trade-led recovery in the region.

Many governments, which have so far focused on using monetary policy tools to cut interest rates or waive loan instalments, will now have to start putting money in the hands of the people to help revive demand.

“Countries with broader social safety nets, greater fiscal space, lower levels of informality, and higher digitization have been able to respond effectively in protecting the vulnerable, but countries that entered the crisis with weaker initial conditions faced greater challenges,’’ the fund said.

Fiscal support such as tax cuts cuts the cost of the pandemic and reduces infections as improvement in disposable income helps make stay-at-home more affordable and reinforces greater social distancing, it said.