Without a second round of infection and unprecedented policy stimulus to support economic recovery, the IMF expects Asian economic growth to rebound strongly to 6.6% in 2021. However, Li Changyong also believes that even if economic activity rebounds rapidly, the output loss caused by the epidemic is likely to continue. Asias economic output in 2022 is expected to be about 5% lower than the level predicted before the crisis. Without China, whose economic activity has begun to pick up, the decline will be even greater.
In the next two years, the Asian economy will face many downward risks. First, trade growth slowed down. Asia is heavily dependent on global supply chains and cannot continue to grow in a difficult global environment. Currently, the IMF predicts that the euro zone economy will shrink by 10.2% in 2020, and the US economy will shrink by 8%. Therefore, Asian trade is expected to shrink significantly, and the total trade volume of Japan, India and the Philippines is expected to drop by about 20% in 2020.
Third, inequality has increased. Inequality has grown in Asia. Because of the high proportion of informal workers in Asia, these effects are likely to be more severe, leading to a longer economic recovery.
Fourth, weak balance sheets and geopolitical tensions. In many Asian economies, household and corporate balance sheets have been weakened, which could have a negative impact on investors and amplify the effects of increased uncertainty caused by geopolitical tensions.
At present, the exchange rates of Asian currencies have rebounded, and oil prices have also rebounded. However, Li Changyong believes that we should not be complacent because of the temporary economic recovery, especially considering the risk of the second wave of epidemic and the possibility of sudden disruptions in Asian financial markets, such as large-scale capital outflow. At the same time, when emerging markets offer fiscal stimulus, they should also consider the impact of exchange rate and sovereign credit rating. Therefore, Asian countries and regions must use fiscal stimulus policy wisely, and at the same time, they should implement economic reform, including close coordination between monetary policy and fiscal policy, resource reallocation, and solving inequality problems. Some countries will not have much policy space in the next two years at least, so they can only rely on international assistance and support to help them protect their livelihood and tide over difficulties. Therefore, one of the lessons learned by Asian countries this time is to consider how to further strengthen social security systems to cope with economic shocks.