A former IMF chief economist has suggested that the coronavirus epidemic was “taken a little more lightly" by western economies, as compared to those in Asia, resulting in a situation when they now face an estimated growth drop of around 6 percentage points this year.
Raghuram Rajan, Chief Economist and Director of Research at the International Monetary Fund between 2003 and 2006, appeared on BBC's Asia Business Report, saying:
"I think in the west, partly because there hadn't been a direct experience of a serious epidemic, it was taken a little more lightly.”
Explaining that in his opinion the western states might have been lulled into complacency by considerations that the epidemic was something “happening in faraway lands”, the expert continued:
“It's all too easy to point fingers after the fact but what I'm saying is that the countries in East Asia that had the experience of previous pandemics, which didn't quite rise to the level of pandemics I should say... but previous epidemics, they took this seriously right from the get-go."
Prospects Bleak for the West
Offering a bleak forecast for western economies amid their anticipated contraction in the currently volatile conditions, the Indian economist, who is a finance professor at the University of Chicago Booth School of Business, said:
"At this point, we're probably thinking of western countries seeing a shift in GDP growth from about 2 percentage to 3 percentage points, to negative 4 or 5 percentage points. Each country is going to lose 5 to 6 percentage points of GDP at the very least over this year. So cumulate that, that's significantly more than $2 trillion".
Raghuram Rajan, who used to be governor of India's central bank, had kudos for the economies of Asian countries like South Korea and Singapore for their handling of the virus outbreak.
Generally, analysts have been predicting that investors might look to Asia amid the current pandemic, underscoring the region is better prepared economically to ride out the COVID-19 crisis.
With the virus seemingly more contained in Asia, according to Morgan Stanley, cited in late March by CNBC, it “makes sense to tilt your portfolio towards China or towards Asia generally”.
With severe virus outbreaks not new to countries in Asia, and the current pandemic often likened to the SARS epidemic in 2003, which hit mainland China, Hong Kong, and Singapore particularly hard, the countries’ governments are suggested as having positioned themselves strongly for incoming disasters.
Regarding his native India, Raghuram Rajan warned that the densely populated country possessed "limited tools" and “social distancing” was hard to implement.
“Your markets are chock-full of people. Your dwellings are chock-full of people. And so I think the government is trying to attempt to reduce the pace of increase with this lockdown," said the expert, adding that a message should be sent to people to take the pandemic seriously.
Calling for concerted efforts to fight the coronavirus-induced crisis, Raghuram Rajan expressed hope that economies might pool resources rather than opt for protectionist policies.
"We saw countries hijacking each other's medical supplies, we saw countries banning the export of precious medicine. These are things which make everyone worse off."
“Tremendous Uncertainty” About Outlook
The Indian economist’s comments come as the IMF has warned that the global economy faces its worst crisis since the 1930s depression.
Kristalina Georgieva, head of the International Monetary Fund (IMF), conceded that the coronavirus pandemic would render global economic growth "sharply negative" this year, as she forecast that 2021 would witness only a partial recovery if the spread of COVID-19 eased in the second half of 2020.
Emerging markets and developing countries would be the hardest hit, said the IMF managing director.
"Just three months ago, we expected positive per capita income growth in over 160 of our member countries in 2020. Today, that number has been turned on its head: we now project that over 170 countries will experience negative per capita income growth this year," said Georgieva.
As she stressed the “tremendous uncertainty” regarding the outlook, the IMF chief added: "In fact, we anticipate the worst economic fallout since the Great Depression."