COVID-19 Could Contract Asian Economies This Year

For the first time in living memory, Asia’s economy is expected to contract by 1.6%, a downgrade from April’s zero-growth projection, said Chang Yong Rhee, from the International Monetary Fund in a blog Tuesday.

This is a cut-down version of the blog.

Asia’s first-quarter economic growth was greater than projected partly because of early stabilization of the virus in some countries.  But 2020 projections were revised downward for most Asian countries amid weaker global conditions and more protracted containment measures in several emerging economies.

In the absence of a second wave of infections and with unprecedented policy stimulus to support the recovery, Asia’s growth was projected to rebound to 6.6% in 2021.  But even then, COVID-19 output losses likely will persist.

The IMF projected Asia’s 2022 economic output to be about 5% lower than what was predicted before the crisis.  This gap would be much larger if China were excluded.

IMF projections for 2021 and beyond assume a strong rebound in private demand.  However, this may be optimistic for several reasons:

  • Slower trade growth.  Asia depends heavily on global supply chains and cannot grow while the world is suffering.  Asia’s trade was expected to contract significantly from weaker exports, with total trade projected to decline about 20% in 2020 in Japan, India and the Philippines.
  • Longer than expected lockdowns.  Even when lockdowns are gone, full economic activity is not likely because of changes in individual behaviors and physical distancing measures.  An IMF study showed that a lockdown may lead to a contraction in economic activity of about 12% a month, but a full lockdown reversal may increase economic activity by only about 7%.
  • Rising inequality.  Past pandemics led to greater income inequality and hurt employment prospects of those with limited education.
  • Weak balance sheets and geopolitical tensions.  Weakened household and corporate balance sheets in many Asian countries could weigh on investor sentiment and amplify the effect of increasing uncertainties from geopolitical tensions.

But many Asian countries have been able to provide significant monetary and fiscal policy support.  Lower oil prices, improved market sentiment and financial conditions also are helping the recovery.

However, those factors may not last.  The IMF’s recent update on global financial stability cautiond that a sharp adjustment in financial conditions could exacerbate already high borrowing costs for many Asian frontier markets and low-income countries.




Asian countries must use fiscal stimulus wisely and complement it with economic reforms.

Priorities include:

Close coordination of monetary and fiscal policy.  Monetary policy should help ensure the flow of credit with central bank support for lending to smaller firms.

Resource reallocation.  A robust recovery hinges on exiting the current support phase and transitioning to policies that help strengthen solvency.

Addressing inequalities.  Access to health and basic services, finance and the digital economy should be broadened.




Fed cattle sold Tuesday at $95 per cwt on a live basis, down $3 to up $1.50 from last week’s range.  Dressed-basis sales were at $152 to $155 per cwt, steady to down $1.

The USDA choice cutout Tuesday was down $1.39 per cwt at $206.97, while select was off $0.81 at $199.90.  The choice/select spread narrowed to $7.07 from $7.65 with 120 loads of fabricated product sold into the spot market.

Forty-two heifer and seven steer contracts were tendered for delivery at zero Tuesday against the Jun live cattle futures contract.  Five of the heifer tenders and no steers were demanded.

The CME Feeder Cattle index for the seven days ended Monday was $129.42 per cwt, down $0.26.  This compares with Tuesday’s Aug contract settlement of $13w.85, down $0.65.