Any recovery in the manufacturing sector in China and the rest of Asia this year will be short lived as Asia-Pacific’s growth in 2020 is expected to grind to a halt amid the coronavirus outbreak, according to the director of the International Monetary Fund’s Asia and Pacific Department.
Changyong Rhee reinforced the severity of the impact of Covid-19 on Asia-Pacific economies, noting that growth in the region would be zero this year, much worse than the global or the Asian financial crisis’, when growth was 4.7 per cent and 1.3 per cent respectively.
Successful containment policies could lead to a recovery in 2021, but with most sectors in China and Asia-Pacific having been pummelled, any recovery would need to be viewed with caution, even though manufacturing activity in China picked up earlier this month.
“We see some evidence the manufacturing sector is not much affected yet … in China, after February we see some signs of recovery in manufacturing activity too, but I think that trend will not last,” Rhee said during an International Monetary Fund (IMF)-World Bank spring meetings briefing in the United States on Wednesday.
I think except a few companies which sell medical products, medicines and some IT-related products, they might get some boost, but otherwise there is no winner in this crisis
“We are expecting global trade will shrink by close to 11 per cent this year, so manufacturing will be hit hard again.
“I think except a few companies which sell medical products, medicines and some IT-related products, they might get some boost, but otherwise there is no winner in this crisis.”
Last week, the World Trade Organisation said global trade could fall by up to 32 per cent in 2020 due the damage to the economy from the coronavirus pandemic.
Asia-Pacific is set to experience weak momentum in recovery, because unlike previous economic shocks, all of the region’s sectors, especially the services sector, have been hit simultaneously hard by Covid-19 containment measures.
This has been further exacerbated by weakness in its trading partners, advanced western economies, which have suffered even harder shocks.
China, the region’s big player, is not expected to recover as well as it did during previous slowdowns such as the global financial crisis in 2007-2008, even though the IMF has forecast its economic growth rate of 1.2 per cent in 2020 will be better than most countries in the region, added Rhee.
“China’s growth did not change much, at 9.4 per cent in 2009, thanks to their enormous stimulus packages, but we cannot expect that magnitude of stimulus this time from China,” Rhee said after China’s growth rate only dropped from 9.6 per cent in 2008 before recovering to 10.6 per cent in 2010.
“Many Asian countries will be forced to use large stimulus packages despite their limited fiscal base … when they rely on large stimulus packages they have to worry about the possible negative impact of the external sector especially the foreign exchange market.”
However, there is room for China to adjust its fiscal policies if the crisis worsens, while it can also play an important role in the region’s recovery by providing financial support and liquidity to low-income countries, added Rhee.
The IMF has forecast global growth to contract by 3 per cent in 2020, meaning the downturn will be the worst since the Great Depression of the 1930s.
Asia-Pacific’s overall growth this year will be zero, according to the IMF, with the advanced economies such as Australia and New Zealand expected to be hit the hardest. The IMF has forecast Australia to register a 6.7 per cent decline in growth in 2020, while New Zealand will retreat 7.2 per cent.
Among the region’s emerging countries, Thailand is the only one expected to suffer a similar decline with a fall of 6.7 per cent.
The Micronesian archipelago of Palau is expected to contract by 11.9 per cent, the Maldives by 8.1 per cent and Fiji by 5.8 per cent.
“These countries are also among the most vulnerable given the limited fiscal space, as well as comparatively underdeveloped health infrastructure,” said Rhee.
Asia-Pacific’s key trading partners, the US and the European Union, are expected to be hit even harder, with the US economy set to contract by 5.9 per cent and Europe by 5.9 per cent.
It is unlikely Asia, despite its slightly better growth position, will be able to recover on its own, particularly because most Asian countries are heavily dependent on trade with the US and European countries.
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