IMF cuts emerging Asia growth forecast on Covid-19 resurgence

The International Monetary Fund on Tuesday cut this year's economic growth forecast for emerging Asia, as a spike in coronavirus cases from new variants and slow vaccinations cloud the region's recovery prospects.

The downgrade, which contrasted with an upward revision in the IMF's forecast for advanced nations, highlights the divergence emerging across countries on the pace of recovery from pandemic-induced strains.

In an update to its World Economic Outlook (WEO), the IMF forecast emerging Asia will grow 7.5 per cent this year, down 1.1 per cent points from its previous projection made in April.

That was a much bigger downgrade than a 0.4 point mark-down for emerging economies across the globe.

"Growth prospects in India have been downgraded following the severe second Covid wave during March-May and expected slow recovery in confidence from that setback," the IMF said.

"Similar dynamics are at work in the ASEAN-5 group...where recent infection waves are causing a drag on activity," it said.

The IMF cut this year's growth forecast for India by 3.0 points to 9.5 per cent. The projection for the ASEAN-5 group consisting of Indonesia, Malaysia, the Philippines, Thailand and Vietnam was marked down by 0.6 point to 4.3 per cent.

China's 2021 forecast was revised down 0.3 point to 8.1 per cent due to a slowdown in public investment and fiscal support.

For 2022, the IMF raised the growth forecast for emerging Asia by 0.4 point to 6.4 per cent.

Southeast Asia has become a global epicentre for the contagious Delta variant of the coronavirus, forcing countries to impose travel bans and lockdown measures that are dragging on growth.

"We expect renewed virus outbreaks and a subsequent retightening in restrictions to delay the economic recovery, particularly in South East Asia," Oxford Economics said in a research note.

"Low vaccination rates outside of China and Singapore also leave many in the region vulnerable to Covid-19 setbacks and the risk that the extent of economic scarring is much greater than we currently project," it said.