20th October 2020

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IMF Outlook on Indian Economy

On June 24, the IMF predicted a “record” sharp 4.5% contraction in the Indian economy in 2020, citing the unprecedented coronavirus pandemic that almost stopped all economic activity, but said it the country was expected to recover in 2021 with a robust growth rate of 6%.

The International Monetary Fund (IMF) forecast global growth of – 4.9% in 2020, a 1.9 percentage points lower than the forecasts of the World Economic Outlook (WEO) for April 2020.

“We expect a sharp contraction in 2020 of -4.5%. Given the unprecedented nature of this crisis, as is the case in almost all countries, this projected contraction is a record level, Indo-American IMF chief economist Gita Gopinath told PTI she published the outlook update for The World Economy in Washington.

The COVID-19 pandemic had a more negative impact on activity in the first half of 2020 than expected, and the recovery should be more gradual than expected. In 2021, global growth is expected to reach 5.4%, according to this report.

For the first time, all regions are expected to experience negative growth in 2020. In China, where recovery from the sharp contraction in the first quarter is underway, growth is expected to be 1.0% in 2020, supported in part by political revival.

“The Indian economy is expected to contract by 4.5% after a longer blockade and a slower than expected recovery in April,”

said the IMF.

The IMF file reveals that it is the lowest for India since 1961. The IMF has no data beyond this year. However, the Indian economy is expected to recover in 2021 with solid growth of six percent.

In 2019, India’s growth rate was 4.2%. The latest projection for 2020 for India is a whopping -6.4% less than the April forecast for the IMF. The forecast growth rate of 6% in 2021 is -1.4% lower than its forecasts for April.

The COVID-19 pandemic pushed the economies into a big blockade, which helped contain the virus and save lives, but also triggered the worst recession since the Great Depression, said Gopinath.

Over 75% of countries are reopening at the same time as the pandemic is intensifying in many emerging markets and developing economies. Several countries have started to recover. However, in the absence of a medical solution, the strength of the recovery is very uncertain and the impact on sectors and countries is uneven, he added.

In a blog post, Ms. Gopinath said that this global crisis like no other will experience a recovery like no other.

“First, the unprecedented global scope of this crisis is hampering prospects for recovery for export-dependent economies and jeopardizing the prospects for income convergence between developing and advanced economies,”

Ms. Gopinath

“We anticipate a deep synchronized recession in 2020 for advanced economies [-8%] and emerging and developing market economies [-3%; -5% if China is excluded], and it is expected that more than 95% of countries will experience negative growth in per capita income in 2020″ she added.

The cumulative impact on GDP growth over the 2020-2021 period for emerging markets and developing economies, excluding China, is expected to outweigh that of advanced economies, said Gopinath.

On her blog, she noted that a high degree of uncertainty surrounds these forecasts, with upside and downside risks for the outlook. On the upside, the best news about vaccines and treatments, and support for additional policies, could lead to a faster recovery in economic activity.

On the downside, new waves of infections can reverse mobility and spending, and quickly tighten financial conditions, causing debt problems, said Mrs. Gopinath.

What International Monetary Fund – IMF does

  • The IMF mainly performs three types of work, the organization is dedicated to monitoring and following up economic and financial developments, and to providing policy advice, particularly in crisis prevention.
  • The IMF also lends to countries with balance of payments difficulties, to provide temporary financing and to support policies aimed at correcting the underlying problems; Loans to low-income countries are also particularly aimed at reducing poverty.
  • Third, the IMF provides countries with technical assistance and training in their areas of expertise. IMF support to these three activities is the IMF’s work in economic and statistical research.
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