The International Monetary Fund’s (IMF) prediction for Asian economic output is significantly lower than the 7.6 percent growth predicted by its economists in April. The updated figure suggests the region will grow by 6.5 percent in 2021. But matters could get worse, with the Covid pandemic “still ravaging the region”.
“Risks are tilted to the downside, mainly because of uncertain pandemic dynamics, vaccine efficacy against virus variants, supply chain disruptions, and potential global financial spillovers from US monetary normalisation in the presence of domestic financial vulnerabilities,” the report says.
China’s expected growth remains higher than that of most other countries in the region but has still seen a slight drop, from 8.4 to eight percent.
Meanwhile, India’s expected growth has been slashed by three percentage points, while remaining strong at 9.5 percent, and projections for Japan have been downgraded to 2.4 percent.
The IMF says that Asia and Pacific remains the fastest growing region in the world but forecasts vary wildly between advanced and developing economies.
For example, the Maldives is forecasted an economic growth of 18.9 percent in 2021 while Palau, a country in Oceania, is forecasted to decline by 19.7 percent.
This divergence is partly a result of differing vaccination rates and levels of policy support, according to the IMF.
“Achieving widespread vaccination is the foremost priority because delayed deployment and unequal access are contributing to more protracted recoveries,” the report says.
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This is highlighted by the finding that manufacturing held up in the first half of 2021, largely due to a “surging demand for pandemic-related supplies”, while service and retail sales are seeing slower recoveries.
Elsewhere, the continued hit to tourism is prolonging – if not preventing – economic recoveries.
In comparison, the IMF predicts the UK economy will grow by 6.8 percent in 2021.
This is up from the 5.3 percent growth predicted in April.
Meanwhile, the US economy is expected to grow by 6 percent, down from the 6.4 percent growth predicted in April.
The reduced forecast in the US reflects supply disruptions and softening consumption in the third quarter.
The IMF says that trade and technology tensions, especially between China and the US, could also have an impact on investment and productivity growth.
The report concludes that Covid vaccination “has a significant and persistent effect on economic activity, but these effects increase with the share of population vaccinated”.
“More equitable access to vaccination – by sharing excess vaccine doses, together with ramped-up vaccine production and adequate vaccine distribution across counties – is welfare enhancing for all,” it says.