IMF cuts growth rate of Asean's key economies to minus 1.3%

It expects Singapore economy to shrink 3.5% this year, with a recovery to 3% growth in 2021

DR CHANGYONG RHEE, director of the Asia and Pacific Department at the International Monetary Fund, on Singapore's expansionary fiscal policy.

The International Monetary Fund (IMF) has revised down the 2020 growth rate of the Asean-5 countries - Indonesia, Malaysia, the Philippines, Singapore and Thailand - to minus 1.3 per cent.

"Large Asean countries have introduced public health measures including lockdowns, and there are negative economic impacts from reduced tourism, disrupted trade and manufacturing, and the spillovers from financial markets," Dr Changyong Rhee, director of IMF's Asia and Pacific Department, said in a virtual press conference on Wednesday.

The Asia and Pacific Regional Economic Outlook defines Asean-5 as the group's original signatories - Indonesia, Malaysia, the Philippines, Singapore and Thailand.

A separate document by the IMF, the World Economic Outlook, however, refers to Asean-5 based on economic size, thus including Vietnam in place of Singapore.

Dr Rhee said Thailand, badly hit by a tourism crash, will see minus 6.7 per cent growth.

"For the frontier economies (such as Cambodia, Laos, Myanmar and Vietnam), their export and tourism-driven economies are likely to be significantly disrupted by the global spread of the virus even though they seem to be at the beginning of the epidemic curve," he said.

Singapore's economic contraction is projected by the IMF as 3.5 per cent, with a recovery to 3 per cent growth next year.

Its Ministry of Trade and Industry had earlier estimated full-year gross domestic product (GDP) growth forecast of minus 4 per cent to minus 1 per cent.

Singapore's expansionary fiscal policy is unprecedented, but it is an unprecedented time and it is unavoidable, Dr Rhee said.

The expansion "is in line and even at the lower end of what Europe and even the US are currently doing", he added.

Singapore has committed $59.9 billion, or roughly 12 per cent of GDP, to battle the coronavirus crisis.

The slowdown in advanced economies is much more severe, with Asia's key trading partners expected to contract sharply, including the United States by 5.9 per cent and the euro zone by 7.5 per cent, Dr Rhee said.

Japan's economic outlook for this year has deteriorated significantly, with real GDP expected to decline by 5.2 per cent.

While China's economy is beginning to get back to work, other economies are imposing tighter lockdowns, and some are experiencing a second wave of virus infections.

"China is expected to grow by 1.2 per cent in 2020," Dr Rhee said.

"We expect a rebound in economic activity later this year. This is because China is emerging from the outbreak first. Nonetheless, there are clear risks: The virus could come back and normalisation could take longer."

South Korea is anticipated to have minus 1.2 per cent growth, he said.

"The negative impact on growth is expected to be smaller than in most other advanced economies, reflecting effective strategy to flatten the infection curve, which has avoided major production shutdowns in manufacturing and services."

India's growth has been revised down to 1.9 per cent for fiscal year 2020, Dr Rhee said, as India entered the pandemic turmoil in the midst of a credit crunch-induced slowdown and its recovery prospects have become more uncertain.

Asia's growth, however, still fares better than that in other regions, he said. "For 2021, there is hope: If containment policies succeed, we will see a rebound in growth.

"This is not a time for business as usual. Asian countries need to use all policy instruments in their toolkits. In doing so, policy trade-offs will be inevitable and will depend on policy space.

"The first priority is to support and protect the health sector to contain the virus and introduce measures that slow contagion.

"If there is not enough fiscal space, countries will need to re-prioritise from other expenditures."

Dr Rhee said in his policy recommendations: "Containment measures are severely affecting economies. Targeted support to hardest-hit households and firms is needed.

"Targeted support combined with domestic demand stimulus in a recovery will help to reduce scarring, but it needs to reach people and smaller firms."

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A version of this article appeared in the print edition of The Straits Times on April 17, 2020, with the headline IMF cuts growth rate of Asean's key economies to minus 1.3%. Subscribe