IMF cuts Asia’s growth forecast, warns of pandemic-driven risks

The International Monetary Fund (IMF) slashed this year’s economic forecast for Asia, reflecting a sharper-than-expected contraction in countries like India, a sign the coronavirus pandemic continues to take a heavy toll on the region.

While the IMF upgraded next year’s growth forecast, it warned the recovery will be sluggish and patchy with countries dependent on tourism seen taking a particularly hard hit.

“Fear of infection and social distancing measures are dimming consumer confidence and will keep economic activity below capacity until a vaccine is developed,” the IMF said in a report on the Asia-Pacific region released on Wednesday.

“Although China’s recovery can boost regional trade, weak global growth, closed borders, and festering tensions around trade, technology, and security have worsened the prospects for a trade-led recovery in the region.”

The IMF said it expects Asia’s economy to contract 2.2% this year. That decline is 0.6 of a percentage point larger than its forecast in June, due to sharp slumps in countries like India, the Philippines and Malaysia.

India’s economy is likely to shrink 10.3% this year in stark contrast to China, which is set to expand 1.9%, the IMF said.

Asia’s economy is likely to grow 6.9% in 2021 thanks to the boost from expected stronger recoveries in China, the United States and the euro area, it said.

But the IMF said there were “considerable” risks such as the chance of a second wave of infections, escalating U.S. tensions and a potential return to tighter financial conditions.“With the pandemic seemingly far from over, policy support should be sustained and, in some cases, increased,” it said.

“A full arsenal of policy support is needed” that includes steps to help households and businesses cope with structural changes caused by COVID-19 such as permanent job losses in industries like tourism, it said.

“Policymakers need to redouble efforts to keep workers connected to the labor force and solvent firms in business while allowing non-viable firms to exit,” the report said. (Reporting by Leika Kihara; Editing by Sam Holmes)

Meanwhile, stocks are drifting higher on Wall Street Wednesday as negotiations continue in Washington on more aid for the economy, though prospects remain cloudy that anything can happen soon.

The S&P 500 was up 0.4% after swinging between very small gains and losses in early trading. The Dow Jones Industrial Average was up 65 points, or 0.2%, at 28,373, as of 9:44 a.m. Eastern time, and the Nasdaq composite was 0.6% higher.

Netflix fell 3.9% for one of the largest losses in the S&P 500 after it said growth in its subscriber rolls slumped by more during the summer than it had forecast. It also reported a weaker quarterly profit than analysts expected, following a surge earlier this year when people were yearning for things to watch amid coronavirus-caused lockdowns.

It’s a rare disappointing report in what’s so far been a much better earnings season than Wall Street girded for. Roughly one in six of the companies in the S&P 500 index has reported its results for the July-through-September quarter, and most have topped the low expectations analysts had set.

S&P 500 companies are on track to report a decline of a little less than 18% in earnings per share for the quarter from a year ago, which is not as bad as the 21% drop that analysts were forecasting at the end of the quarter, according to FactSet.

Much of Wall Street’s focus has been on Washington, though, where White House officials and Democrats are negotiating on another round of support to prop up the still-struggling economy.

The two sides have been making progress, House Speaker Nancy Pelosi told her Democratic colleagues in a letter late Tuesday. She said she hopes discussions will continue, past a self-imposed deadline of Tuesday.

Markets have been swinging recently with the perceived prospects of such stimulus. Investors have been clamoring for it since the summer, when extra benefits for laid-off workers and other support provided by the last round of aid approved by Congress expired.

But even if leaders from the White House and House of Representatives can reach a compromise soon, its fate looks unclear on Capitol Hill due to its growing price tag. Senate Majority Leader Mitch McConnell told fellow Republicans that he has warned the White House not to divide the party by sealing a relief deal before the election that could cost $2 trillion.

Regardless of the opposition, Jeffrey Halley of Oanda said, “the one lesson we can take is that the U.S. fiscal stimulus package remains the only thing financial markets are concentrating on, to the exclusion of everything else.”

The yield on the 10-year Treasury held steady at 0.81% after rising as high as 0.83% earlier Wednesday. It’s been generally climbing since dropping close to 0.60% early last month.

In London, the FTSE 100 index sank 1.4% after data showed government borrowing rose to the highest level on record in the first half of the financial year as tax revenue fell and authorities spent billions of pounds to prop up an economy ravaged by the coronavirus pandemic. France’s CAC 40 fell 1%, and Germany’s DAX lost 0.9%.

Agencies