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Will Asia see an economic growth famine in 2020 for the first time in 60 years?

HYDERABAD / NEW DELHI : Asia is likely to see an economic growth famine in 2020 for the first time in 60 years, warned the International Monetary Fund (IMF). In its regional report on the Asia-Pacific released on Thursday, the multi-lateral agency pegged zero growth this year.

The projection for 2020 is worse than the 4.7% average growth rate seen during the 2008 global financial crisis, and the 1.3% expansion during the 1997 Asian financial crisis.That’s because, unlike past crises, Covid-19 pandemic has gridlocked economic activity for months, forcing households to stay home and shops to shut.

“This is not a time for business as usual. Asian countries need to use all policy instruments in their toolkits,” said Changyong Rhee, director, Asia and Pacific Department, IMF. The impact on India could be substantial. SBI Research on Thursday said the economic loss due to the ongoing lockdown could be `12.1 lakh crore. It estimates the income loss due to the lockdown for 37.3 crore workers at `4.05 lakh crore.

According to sources, a stimulus package for worst-hit sectors is in the works. On Thursday, Finance Minister Nirmala Sitharaman met Prime Minister Narendra Modi to brief him about the state of the economy hit by coronavirus outbreak and planned policy responses to it.

Meanwhile, IMF expects a 7.6% expansion in Asian economic growth next year on the assumption that containment policies would succeed. It urged Asian policymakers to offer targeted support to households and firms hit by the pandemic, besides calling for efforts to provide ample liquidity to markets and ease financial stress faced by small and midsize firms.

According to Rhee, direct cash transfers to citizens, part of the US stimulus package, may not be the best policy for Asian countries, who should focus on preventing small firms from going under increasing unemployment.

The region should tap bilateral and multilateral swap lines, seek financial support from multilateral institutions, and use capital controls to battle any disruptive capital outflows, it noted.
Asia’s export powerhouses were getting battered due to demand slump from the US and European countries.

China’s economy is tipped to grow 1.2% this year on weak exports and losses in domestic activity due to social distancing norms. However, it is expected to see a rebound in activity later this year, with growth to bounce back to 9.2% next year.

But there were risks even to China’s growth outlook as the virus could return and delay normalisation. “Chinese policymakers have reacted strongly to the outbreak of the crisis … If the situation becomes aggravated, they have more room to use fiscal, monetary policies,” Rhee said.

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