Significant risks in Asia-Pacific: IMF

The IMF has warned there are significant risks to the outlook in the Asia-Pacific region.
The IMF has warned there are significant risks to the outlook in the Asia-Pacific region.

The International Monetary Fund has warned that while the Asia and Pacific region is starting to show a tentative recovery alongside the global rebound there are still significant risks to the outlook.

Releasing its regional Asia and Pacific economic outlook, the IMF said its forecasts remain "highly uncertain".

"A resurgence of the pandemic cannot be ruled out," the Washington-based institution says.

It says geopolitical tensions - particularly between the US and China - may also derail the recovery, while a rise in social unrest triggered by the pandemic's disproportionate impact on the poorest and most vulnerable could compromise recent hard-won gains.

However, one positive would be an early, large-scale rollout of an effective vaccine.

It says the outlook also varies by country depending on infection rates and containment measures and the scale and effectiveness of the policy response.

"In parts of Asia where virus transmission rates are low, mobility and activity could normalise faster than elsewhere," it says.

However, labour market participation has fallen, and output is expected to remain below pre-pandemic trends over the medium term, with the most vulnerable in society likely to be hit the hardest.

The IMF reiterated that with the pandemic seemingly far from over, policy support should be sustained and, in some cases, increased.

"Targeted fiscal spending is needed until the recovery is entrenched," it says.

"It should aim at the most vulnerable where fiscal multipliers are highest."

Monetary policy should also remain supportive.

But as the recovery takes hold, the IMF said there will be a case for dialling back some of the measures adopted at the height of the pandemic, given elevated debt levels such as in China, or high household debt as in Australia.

As in its recent World Economic Outlook the IMF is forecasting Australia's economy to contract by 4.2 per cent this year, but expand by three per cent in 2021.

A year ago it had forecast Australia to grow by 2.2 per cent in 2020 and 2.6 per cent next year.

Australian Associated Press