IMF warns of a weaker economic recovery in Southeast Asia as Covid restrictions linger

SINGAPORE — The International Monetary Fund downgraded its forecasts for several Southeast Asian economies even as it turned more optimistic about the global economy and Asia-Pacific more broadly.

The IMF expects the five largest developing economies in Southeast Asia to collectively grow by 4.9% in 2021, down from its previous projection of 5.2%. Those five economies are Indonesia, Malaysia, the Philippines, Thailand and Vietnam.

Jonathan Ostry, IMF’s deputy director of the Asia and Pacific department, said on Wednesday that an increase in Covid cases and renewed lockdowns are dampening the economic prospects of some Southeast Asian countries.

“We are concerned both about the outlook for tourism, when those markets will reopen, and the additional lockdowns and continued measures that the disease’s unexpected turn in some of those countries is creating,” Ostry told CNBC’s “Squawk Box Asia.”

Indonesia, Malaysia and the Philippines are among those that had to tighten some restrictions this year following a surge in Covid cases. Vaccination in those countries is also progressing at a slower pace compared with many nations globally.

Statistics compiled by Our World in Data showed that 3.76% of people in Indonesia have received at least one dose of a Covid vaccine — lower than the global level of 5.76%. The share stood at 1.8% and 0.96% for Malaysia and the Philippines, respectively, according to the data.

A ‘big worry’ in India

The downgrade in growth forecasts for some Southeast Asian economies came as the IMF upgraded its growth forecast for the broader Asia-Pacific region from 7.3% to 7.6% for this year. The fund also bumped up its 2021 growth projection for the global economy from 5.5% to 6%.

Ostry said advanced economies such as Japan, South Korea, Australia and New Zealand were behind Asia-Pacific’s brighter prospects this year.

“Asia’s a very open, outward-oriented region and there are going to be positive spillovers from the better U.S. picture and the stronger U.S. fiscal stimulus, especially for the Asian advanced economies,” he said.    

Among the region’s developing economies, the IMF upgraded its growth projections for China and India.

China is now expected to grow by 8.4% this year, higher than the fund’s previous forecast of 8.1%; while India is projected to expand by 12.5%, faster than the 11.5% that the IMF previously expected.

But Ostry said there’s still a “big worry” about a surge in Covid cases in India. The South Asian country this week overtook Brazil as the second worst-infected nation, behind only the U.S.

“In the particular case of India, it was a conservative — I think — projection at 12.5%, others were higher than that and we are still okay with that number though there is certainly downside risks,” said Ostry.

He pointed out that the increase in infections in India have so far been confined to certain states and areas — and is not yet a nationwide issue.

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