Regional Economic Outlook (REO), the IMF notes that the COVID-19 pandemic has taken a turn for the worse in Asia since the spring, along with the region’s growth outlook. The growth projection for the Asia and Pacific region is downgraded by more than 1% to 6.5% compared to the April 2021 forecasts — more than for any other region. The downgrade is mostly due to the fast spread of the Delta variant amid initially low vaccination rates, which has tragically led to further devastating loss of lives, especially in the densely populated south and southeast Asia. Although demand for Asian manufacturing and exports from Europe and the US has supported recoveries, real GDP outcomes in the first half of 2021 have disappointed. Manufacturing held up because of surging demand for pandemic-related supplies, but contact-intensive sectors such as services and retail sales are taking longer to recover.
Despite the downward revision, Asia Pacific remains the fastest growing region in the world. But the divergence between Asian advanced economies and emerging and developing economies is deepening. High-tech (e.g., China, South Korea) or commodity exporters (e.g., Australia, New Zealand) can take full advantage of favorable external demand and accommodative financial conditions. By contrast, tourism-dependent economies such as the Pacific Island countries and Thailand, as well as economies with limited room for fiscal stimulus (mostly low-income countries), have been lagging.
As vaccination rates accelerate, the region is expected to grow by 4.9% in 2022, 0.4 percentage point faster than projected in April. However, output levels in emerging and developing economies are expected to remain below pre-pandemic trends in the coming years.
Accelerating inflation remains a concern for the global economy, though price increases in Asia are more subdued than in other regions. Higher commodity prices, supply chain bottlenecks, and rising shipping costs have impacted exports more than domestic production. And thus, domestic consumer price increases have been contained.
As a result, monetary policies in the region have not tightened as much as in the rest of the world. While New Zealand was the first advanced economy to taper asset purchases and Korea the first to raise policy interest rates (mainly due to financial stability considerations), emerging Asia has maintained an accommodative monetary policy to foster the recovery, unlike other emerging markets.
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