Asia’s economy is expected to shrink this year “for the first time in living memory,” the International Monetary Fund said, warning that the region could take several years to recover.
The fund said in blog post published Tuesday that Asia’s economy will likely contract by 1.6% this year — a downgrade from its previous forecast of no growth in April.
The region is still in a better shape compared to other parts of the world, but a weaker global economy has made it difficult for Asia to grow, Changyong Rhee, director of the Asia and Pacific department at IMF, told CNBC’s “Squawk Box Asia” on Wednesday.
He said “Asia cannot be an exception” when the whole world is suffering from the effects of the coronavirus pandemic.
The IMF last month slashed its forecasts for the global economy. It projects the world economy could shrink by 4.9% this year before rebounding to grow by 5.4% next year.
Asia was the first region to be hit by the coronavirus disease — or Covid-19 — which first emerged in the Chinese city of Wuhan. After the virus spread globally, many governments imposed measures that restrict people’s interactions and movements, which severely reduced economic activity.
Rhee said Asia’s economy is expected to rebound strongly to register a 6.6% growth next year. But the level of economic activity in the region would still be lower than what IMF had projected before the pandemic, he added.
“What we are worried about Asia is actually the recovery from 2020,” said Rhee.
He explained that countries in the region have a “heavy dependence” on trade, tourism and remittances — segments of the global economy that were hit hard by the pandemic.
“Even if we develop new medical solutions, the recovery of … contact-intensive sectors will be slow, tourism for example. So because of that, I think Asia’s recovery will be protracted,” he said.
And if there is a second wave of infections in the region, many governments may not have the firepower to support their economies like they did during the first wave, Rhee added.
That’s especially true for the region’s emerging economies, which have “relatively limited” policy space to respond to a resurgence of cases, he explained.
“So I wonder, if the second wave happens, whether the Asian governments can use the same stimulus as in the … first crisis,” he said. “So we have to be more concerned, more cautious.”