During the pandemic, ASEAN+3 governments went all in to support their economies, not least by monetizing fiscal deficits. But pandemic-era policies must now be unwound against a backdrop of slower GDP growth, higher inflation, and increased debt.
SINGAPORE – The global economic landscape is changing fast. Scarring from the COVID-19 pandemic has weakened potential growth, making slower income gains the new normal for many countries. Geopolitical tensions – especially the trade and technology “war” between the United States and China – are threatening not only to halt globalization, a key enabler of growth over the last few decades, but also to split the world economy into separate blocs. And the days of low and stable inflation seem to be giving way to structurally higher and more volatile prices.
Meanwhile, rapid digitalization – propelled partly by advanced technologies like generative artificial intelligence – is continuing apace, and the effects of climate change are becoming more visible by the day. Taken together, these developments pose major challenges to policymakers worldwide. Those in the ASEAN+3 countries – the ten ASEAN member states, plus China, Japan, and South Korea – are no exception.
During the pandemic, ASEAN+3 governments went all in to support their economies, not least by monetizing fiscal deficits – a taboo in normal times. The unprecedented fiscal stimulus they pursued – including large amounts of direct assistance to households and firms, from cash handouts to fuel subsidies – was accompanied by large interest-rate cuts. For example, in the Philippines, cumulative cuts in the policy rate reached 200 basis points in 2020. Governments also pursued policies like debt moratoria and regulatory forbearance.
SINGAPORE – The global economic landscape is changing fast. Scarring from the COVID-19 pandemic has weakened potential growth, making slower income gains the new normal for many countries. Geopolitical tensions – especially the trade and technology “war” between the United States and China – are threatening not only to halt globalization, a key enabler of growth over the last few decades, but also to split the world economy into separate blocs. And the days of low and stable inflation seem to be giving way to structurally higher and more volatile prices.
Meanwhile, rapid digitalization – propelled partly by advanced technologies like generative artificial intelligence – is continuing apace, and the effects of climate change are becoming more visible by the day. Taken together, these developments pose major challenges to policymakers worldwide. Those in the ASEAN+3 countries – the ten ASEAN member states, plus China, Japan, and South Korea – are no exception.
During the pandemic, ASEAN+3 governments went all in to support their economies, not least by monetizing fiscal deficits – a taboo in normal times. The unprecedented fiscal stimulus they pursued – including large amounts of direct assistance to households and firms, from cash handouts to fuel subsidies – was accompanied by large interest-rate cuts. For example, in the Philippines, cumulative cuts in the policy rate reached 200 basis points in 2020. Governments also pursued policies like debt moratoria and regulatory forbearance.