The International Monetary Fund (IMF) on Tuesday downgraded its 2021 economic growth forecast for Asia after the Covid-19 delta variant caused a spike in cases in parts of the region.
The IMF said it expects Asia’s economy to grow by 6.5% in 2021, compared with its April forecast for a 7.6% expansion.
“The global COVID-19 pandemic is still ravaging the region,” the fund said in its Regional Economic Outlook report for Asia and the Pacific.
Asian countries were relatively successful in containing Covid last year. But this year, some — including India, Malaysia and Vietnam — had to fight fresh waves of infections while vaccination rollouts were slow to take off.
“Vaccine access is, I would say, the key fault line or the key divider between how the advanced economies in Asia are doing and how the emerging and developing economies are doing,” said Krishna Srinivasan, deputy director of IMF’s Asia and Pacific department.
Asian countries were behind those in Europe and North America in rolling out Covid vaccines. In many developing countries in Asia, the slow inoculation progress was exacerbated by a lack of access to vaccine supply, Srinivasan told CNBC’s “Squawk Box Asia” on Wednesday.
The resurgence in Covid infections prompted stricter containment measures, which weighed down the services sector and led some factories to temporarily shut. That dampened Asia’s economic outlook even as demand for exports was strong, said the IMF.
Within the region, developing economies suffered the largest economic growth downgrades by the IMF.
Myanmar, where a military coup took place in February, is forecast to contract by 17.9% this year — 9 percentage points more than the fund’s previous projection. The growth forecast for the Philippines was slashed 3.7 percentage points to 3.2%, while that of Malaysia was lowered by 3 percentage points to 3.5%.
Meanwhile, the IMF upgraded its growth forecasts for several advanced Asian economies. Hong Kong is now expected to grow 6.4% in 2021, up from 4.3% previously; while the forecast for Singapore’s growth was bumped up to 6%, from 5.2%.
Despite the downgrade, Asia will remain the fastest-growing region globally this year, the IMF said.
The region’s growth will be led by China and India, the fund added. The IMF expects China to grow 8% this year and India by 9.5% in the fiscal year that ends next March.
The IMF also warned of “untimely policy normalization or misconstrued policy communications” in the U.S. It said that could cause significant capital outflows from the region, and result in higher borrowing costs for Asian emerging markets.
Growth prospects for Japan have been downgraded to 2.4% after a disappointing second quarter and state-of-emergency extensions.
According to the IMF, advanced economies like Australia, South Korea and New Zealand are benefitting from high-tech and commodity booms. Other emerging market and developing economies, notably ASEAN countries, still face severe challenges from a resurgent virus and from weakness in contact-intensive sectors.