Asian countries amid waves of COVID-19 pandemic have to prepare economies for future rate hikes

Asian countries have to tame the current waves of the COVID-19 outbreak to get their respective economies ready for future rate hikes by the US Federal Reserve, says Steve Cochrane, chief Asia-Pacific economist at Moody’s Analytics. He predicted that the US central bank might raise interest rates by 25 basis points once every quarter starting 2023.

Many economies in Asia, as per Asia Times, including Japan, Taiwan and Malaysia in recent months have recorded a renewed surge in COVID cases, which prompted authorities to impose stricter social-distancing measures. The fresh wave of COVID infections has been attributed to the lag in vaccination progress in the region.

Yasuyuki Sawada, Asian Development Bank chief economist, had said in April that growth is gaining momentum across developing Asia, but renewed COVID-19 outbreaks pose a threat to recovery. “Economies in the region are on diverging paths. Their trajectories are shaped by the extent of domestic outbreaks, the pace of their vaccine rollout and how much they are benefitting from the global recovery.

The ADB highlighted that rising exports are boosting some economies in developing Asia amid strengthening global economic activity, including a rebound in manufacturing. Progress on the production and delivery of COVID vaccines has con attributed to this momentum, but the pandemic remains the biggest risk for the region as potential delays in vaccine rollouts or significant new outbreaks could undermine growth. Other risks include geographical tensions, production bottlenecks, financial turmoil from tightening financial conditions and long-term scarring, such as learning losses due to school closures.

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Most economies in developing Asia will see healthy growth this year and in 2022. Central Asian economies are forecast to grow 3.4% on average this year and 4.0% next year. The trade-dependent economies of Southeast Asia will also recover, with the sub-region forecast to grow 4.4% this year and 5.1% in 2022 after contracting 4.0% in 2020. Pacific economies, still affected by global travel restrictions and a collapse in tourism, will post modest growth this year at 1.4% before expanding by 3.8% next year.

Moreover, the World Bank in its report stated that economic output in two-thirds of East Asia and Pacific countries will remain below pre-pandemic levels until 2022. It highlighted that factors could include extended COVID outbreaks and a collapse in global tourism.