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IMF projects India’s economy to contract by 4.5% in 2020, global growth estimated at -4.9%

The International Monetary Fund on Wednesday projected the global growth in 2020 at –4.9%, 1.9%age points below the April 2020 forecast, while estimating that Indian economy will contract by 4.5% in the year. 

The silver lining, however, is that it projects a growth rate of 6.0% in 2021. The growth forecast has taken into account the lockdown which was imposed by various countries around the world over the fears of the spread of coronavirus disease (COVID-19). 

“The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. In 2021 global growth is projected at 5.4%. Overall, this would leave 2021 GDP some 6½%age points lower than in the pre-COVID-19 projections of January 2020. The adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s,” the IMF said in its June 2020 World Economic Outlook (WEO) forecast. 

The IMF said it is for the first time that all regions are projected to experience negative growth in 2020. 

There are, however, substantial differences across individual economies, reflecting the evolution of the COVID-19 pandemic and the effectiveness of containment strategies, variation in economic structure, reliance on external financial flows, including remittances, and precrisis growth trends. 

India’s economy is projected to contract by 4.5% following a longer period of lockdown and slower recovery than anticipated in April, it said. 

In China, where the recovery from the sharp contraction in the first quarter is underway, growth is projected at 1.0% in 2020, supported in part by policy stimulus, it added. 

“In Latin America, where most countries are still struggling to contain infections, the two largest economies, Brazil and Mexico, are projected to contract by 9.1 and 10.5%, respectively, in 2020. The disruptions due to the pandemic, as well as significantly lower disposable income for oil exporters after the dramatic fuel price decline, imply sharp recessions in Russia (–6.6%), Saudi Arabia (–6.8%), and Nigeria (–5.4%), while South Africa’s performance (–8.0%) will be severely affected by the health crisis,” it further said. 

IMF noted that in emerging market economies, the average fiscal response to the pandemic is now estimated at 5% of GDP, sizable but less than in advanced economies. Yet fiscal deficits are projected to widen sharply to 10½% of GDP on average in 2020, more than double the level last year.

India has unveiled liquidity support (4½% of GDP) through loans and guarantees for businesses and farmers and equity injections into financial institutions and the electricity sector, it said. 

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The outlook entitled “A Crisis Like No Other, An Uncertain Recovery” said that as with the April 2020 WEO projections, there is a higher-than-usual degree of uncertainty around this forecast. 

“The baseline projection rests on key assumptions about the fallout from the pandemic. In economies with declining infection rates, the slower recovery path in the updated forecast reflects persistent social distancing into the second half of 2020; greater scarring (damage to supply potential) from the larger-than-anticipated hit to activity during the lockdown in the first and second quarters of 2020; and a hit to productivity as surviving businesses ramp up necessary workplace safety and hygiene practices,” it said. 

For economies struggling to control infection rates, a lengthier lockdown will inflict an additional toll on activity, it added. 

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