JAKARTA (TheInsiderStories) - The COVID-19 pandemic is still unfolding around the globe, said International Monetary Fund in the latest report. In Asia, as elsewhere, the virus has ebbed in some countries but surged in others. The global economy is beginning to recover after a sharp contraction in the second quarter of 2020, as nationwide lockdowns are lifted and replaced with more targeted containment measures.
Global growth has been revised up since the June 2020 World Economic Outlook (WEO) Update to -4.4 percent in 2020, because of better-than-expected second quarter out turns in some major countries where activity began to improve sooner than expected after lockdowns were scaled back. In 2021 global growth is projected at 5.2 percent, a little lower than projected earlier, consistent with the expectation that social distancing persists into 2021 and fades thereafter.
The Asia and Pacific region is also starting to recover tentatively, but at multiple speeds. Economic activity is expected to contract by -2.2 percent in 2020, due to a sharper-than- expected downturn in key emerging markets, and to grow by 6.9 percent in 2021, a 0.6 percentage point lower and 0.3 percentage point higher, respectively than in the June 2020.
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, and 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, however, as labor market participation has fallen, and output is expected to remain below pre-pandemic trends over the medium term, with the most vulnerable in society likely to be hit the hardest. In addition, said the Fund, pandemic plunged the world into a sharp recession in the first half of 2020.
Service sector activity, which relies on person-to-person contact, took a big hit. Manufacturing also weakened substantially, and global trade plummeted. The recovery is projected to be more gradual than previously forecast.
In 2021, global growth is projected at 5.2 percent, 0.3 percentage point lower than projected in June 2020, reflecting the persistence of social distancing into the coming year. Based on high-frequency labor surveys, that inequality is increasing further during the pandemic because job losses have been concentrated among low-income workers.
Moreover, the experience from past pandemics suggests that the adverse distributional effects could be even larger in the medium term—including, looking ahead, through the displacement of low-skilled workers by robots—and that the resulting higher levels of inequality could undermine social cohesion. This is especially salient for countries with already high inequality going into this crisis.
IMF data shows that many Asian governments have implemented significant fiscal policy measures to mitigate the pandemic’ effect on the most vulnerable, with the impact depending on the initial coverage of safety nets, fiscal space, and degree of informality and digitalization.
Although there is no one-size-fits-all solution, the model-based analysis shows that policies targeted to where needs are greatest are effective in mitigating adverse distributional consequences and underpinning overall economic activity and virus containment.
Edited by Editorial Staff, Email: theinsiderstories@gmail.com
