‘A protracted slog’: IMF says Asia faces a sluggish financial restoration | Asia Pacific Information

Employment has a much bigger impact than it did during the global financial crisis, with women and younger workers suffering the most, the IMF says.

In the Asia-Pacific region, economic output is likely to remain below the pre-pandemic trends in the medium term, even if China’s recovery leads the rest of the world according to the International Monetary Fund.

In its latest assessment of the region, the IMF warned of significant downside risks and economic scars as labor force participation falls and the most vulnerable are likely to be hardest hit.

While the Washington-based lender said Asia is slowly clawing its way out of its worst recession yet, it slashed its regional growth forecast to –2.2% in 2020, 0.6 percentage points less than in June. The downgrade was mainly due to stronger contractions in India, the Philippines and Malaysia. The fund gives China growth of 1.9% this year.

“Returning to full capacity will be a long affair,” the IMF wrote in its report on the regional economic outlook, citing ongoing fears of infection, social distancing and border closings that will particularly affect countries that rely on tourism .

“Not being premature, financially as well as withdrawing support, should be on the agenda for policy makers not just in China but around the world,” said Helge Berger, the IMF’s head of mission to China, in an interview with Bloomberg TV.

The IMF’s optimistic outlook for Asia underscores how difficult the road to recovery will be, even in a region that is fueling global growth and where the virus has been largely contained in countries like China and South Korea.

The recovery is also being hampered by employment, which is much harder hit than it was during the global financial crisis, with women and younger workers suffering the most.

Among the support measures governments and central banks can offer their economies, the IMF said debt monetization may be an option.

“In some cases where inflation remains low, debt monetization might be appropriate, provided it is well communicated, limited in size, time-bound and implemented in a clear operational framework that preserves central bank independence and monetary policy is not with special needs.” Fund said.

The current crisis has led some central banks in Asia such as Bank Indonesia to buy government bonds outright, while others said this is an option that can be used if necessary. Critics say the policy could boost inflation and undermine the currency in emerging markets, thereby undermining the confidence of foreign investors.

Geopolitical tensions, especially between the US and China, could also slow recovery given Asia’s central role in global value chains, the fund warned.

“While China’s recovery can boost regional trade, weak global growth, closed borders and persistent tensions over trade, technology and security have worsened prospects for a trade-related recovery in the region,” the IMF said.