The Asian economy is expected to contract “for the first time” this year, the International Monetary Fund said, warning that the region could take several years to recover.
Foundation said in blog post posted on Tuesday that Asia’s economy is likely to contract 1.6% this year – a decrease from the previous forecast of no growth in April.
The region is still in better shape than other parts of the world, but a weaker global economy is hindering Asia’s growth, said Changyong Ri, director of the Asia and Pacific department at the IMF, in an interview with CNBC Squawk Box Asia on Wednesday.
He said that “Asia cannot be an exception” when the whole world suffers from the consequences of the coronavirus pandemic. The IMF cut its forecasts for the global economy last month. He predicts that the global economy could contract by 4.9% this year, and then recover by 5.4% next year.
Asia was the first region affected by coronavirus disease – or Covid-19 – which first appeared in the Chinese city of Wuhan. After the virus spread around the world, many governments have introduced measures that restrict the interaction and movement of people, which sharply reduced economic activity.
According to Ri, it is expected that the Asian economy will recover strongly, and next year the growth will be 6.6%. But the level of economic activity in the region will still be lower than the IMF predicted before the pandemic, he added.
“What bothers us in Asia is the recovery after 2020,” Ri said.
He explained that countries in the region are “heavily dependent” on trade, tourism, and remittances — segments of the global economy that have been hit hard by the pandemic.
“Even if we develop new medical solutions, the restoration of … sectors with intensive contact will be slow, for example, tourism. Therefore, because of this, I think, the restoration of Asia will be protracted, ”he said.
And if a second wave of infections occurs in the region, many governments may not have the firepower to support their economies, as they did during the first wave, Ri added.
This is especially true for countries with emerging economies in the region that have a “relatively limited” political space to respond to the surge in cases, he explained.
“Therefore, I wonder if the second wave happens, whether the governments of Asian countries can use the same incentives as in the … first crisis,” he said. “Therefore, we must be more concerned, more careful.”