On Wednesday, April 15, the International Monetary Fund said that they support India’s decision of lockdown to fight against the coronavirus pandemic. The IMF in its World Economic Outlook had forecast India’s growth rate to be 1.9 per cent in 2020, a day earlier.
Chang Yong Rhee, the Director of the IMF’s Asia and Pacific Department, news agency PTI reported that “India entered the pandemic turmoil amid a credit crunch-induced slowdown and its recovery prospect becomes more uncertain”.
Chang further added, Even after the economic slowdown India implemented a nationwide lockdown and we support the decision of India.
On March 25, India’s 21-days lockdown started, which was about to end on April 14. But the lockdown extended till May 3.
Economic growth will come to a pause
Coronavirus pandemic is making to suffer the whole world. The spread of coronavirus will be severe in the Asia-Pacific region, across the board, and unprecedented. Aisa’s growth in 2020 will come to a pause, Chang added.
This is the worst situation than the annual average growth rates throughout the Global Financial Crisis (4.7%) or the Asian Financial Crisis (1.3%). Since 60 years India has not faced zero growth.
Hope of Rebound
There is a hope of rebound growth in the year 2021. The rebound depends on the success of the containment policies. This year is uncertain that how things will go, added Chang.
Chang further added that this is not a time for business. The Asian countries need to use all policy instruments in their toolkits. In doing so, policy tradeoffs will be inevitable and will depend on policy space, he added.
China growth
China might show growth by 1.2 % in 2020. The revisions to growth reflect both losses of domestic activity due to the social distancing measures, as well as the loss of external demand.
“We expect a rebound in economic activity later this year. Because China is recovering from the outbreak first. Nonetheless, there are clear risks that the virus could come back and normalization could take longer,” Chang said.
Japan and South Korea growth
Japan’s economy for 2020 is deteriorated significantly. Real GDP in Japan is expected to go down by 5.2%, caused by the coronavirus impact. And also because of a sharp downfall of external demand. South Korea’s growth in 2020 is anticipated to be at -1.2%, Chang said.
Priority
Chang said that our main focus should be on controlling this pandemic. The priority should be to support and protect the health care departments to contain the virus and introduce measures that slow contagion.
If there is not enough fiscal space, countries will need to re-prioritize from other expenditures. The containment measures are severely affecting economies; he said targeted support to hardest-hit households and firms is needed.
Economic Shock
This is a real economic shock and it is very different from the Global Financial Crisis. Need of protecting people, jobs and industries directly and not just through financial institutions, Rhee added.
Observing that the pandemic is also affecting the financial market functioning, he urged countries to use monetary and macroprudential regulations flexibly to provide ample liquidity, ease the financial stress of industries and SMEs.
Targetted support is needed
“For markets to emerge with limited fiscal space, they might need to consider how to use central bank balance sheets flexibly to help SMEs through risk-sharing with the government,” he said.
External pressures need to be contained. The countries should seek and utilize bilateral and multilateral swap lines and financial support from the multilateral institutions.
“There can be a role for capital flow measures to secure external sector stability. Use of more aggressive domestic policies to prevent lasting social and economic distress,” he said.
“Targeted support combined with domestic demand for recovery will help to reduce scarring, but it needs to reach people and smaller firms.”