Lee Chang-yong IMF Director: "Asia Highly Dependent on Global Supply Chains... Stimulus Measures Must Be Used Wisely"

[Image source=EPA Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Lee Chang-yong, Director of the Asia-Pacific Department at the International Monetary Fund (IMF), forecasted that the Asian region, which is highly dependent on global supply chains, will face significant economic repercussions from the COVID-19 pandemic, making it difficult to achieve economic growth while other regions are struggling.

On the 30th of last month (local time), Director Lee stated this in a post titled "Asia Opened: How Can the Right Policies Help Economic Recovery?" published on the IMF blog. He referred to the IMF's economic forecast that Asia's economic growth rate will decline by 1.6% this year, noting that this is a drop from the earlier April forecast of 0%.

Director Lee said, "If there is no resurgence of COVID-19 and unprecedented stimulus measures are in place, the Asian economy is expected to rebound by 6.6% next year," adding, "However, despite such a rapid recovery in economic activity, production will decrease due to COVID-19." He further explained, "Asia's economic growth rate in 2022 is lowered by 5% compared to pre-crisis levels. This gap will widen except for China, where economic activity has already begun to recover."

He also stated, "Asian trade is expected to decline significantly due to weakened external demand," and "the total trade volume, combining exports and imports, is expected to fall by about 20% this year in Japan, India, and the Philippines." Furthermore, he predicted that even if lockdown measures to curb the spread of COVID-19 are fully lifted, it will be difficult for economic activities to return to normal.

Additionally, he anticipated that the spread of inequality and the worsening financial conditions of households and businesses in Asia will negatively affect investment sentiment and other factors. However, he noted that active monetary and fiscal policies by Asian governments and lower costs due to reduced international oil prices are expected to aid economic recovery.

Director Lee emphasized, "Asian countries are experimenting with reopening economic activities, and policies should focus on supporting initial economic recovery without worsening vulnerabilities." He also stated, "Stimulus measures should be used wisely and implemented alongside economic reforms." In particular, he stressed the need to inject liquidity through monetary and fiscal policies and to allocate resources appropriately for economic recovery. He added that social safety nets in health and finance sectors should be secured and inequality issues addressed.

In an interview with the South China Morning Post (SCMP) published the same day, Director Lee also highlighted that some companies may find it difficult to survive independently due to the COVID-19 crisis, suggesting that governments will need to determine which sectors or companies to support. He mentioned the necessity of policy choices between supporting economic activities and businesses to absorb the shock of corporate failures on employment and income, and expanding financial asset transfers to individuals and households.

Director Lee pointed out that governments and central banks in Asia must seize opportunities through more creative initiatives to revive the economy, citing the example in Korea where the Korea Development Bank, supported by funds from the Bank of Korea, established a special purpose vehicle (SPV) to purchase corporate bonds and support small and medium-sized enterprises. He mentioned that such "risk sharing" could be applied more broadly across Asia.

This content was produced with the assistance of AI translation services.