Historic low: IMF expects India's GDP to contract 4.5 per cent sharply in FY21.
On Wednesday, the IMF forecast a sharp 4.5 per cent contraction for the Indian economy in 2020, a "historic low," citing the unprecedented coronavirus pandemic that has nearly halted all economic activity, but said the country is expected to bounce back in 2021 with a strong six per cent growth rate.
The International Monetary Fund ( IMF) projected global growth to 4.9 per cent in 2020, 1.9 percentage points below the World Economic Outlook (WEO) estimate for April 2020.
"We are planning a sharp contraction of -4.5 per cent in 2020. Given the unprecedented nature of this crisis, as is the case with almost all countries, this projected contraction is a historically low one,"
Indian-American Gita Gopinath, IMF’s Chief Economist, told PTI as she released the World Economic Outlook Update here.
The Covid-19 pandemic has had a more detrimental effect on activity than expected in the first half of 2020 and the recovery is projected to be more gradual than previously forecast. Global growth is expected to hit 5.4 per cent in 2021, the study said.
It is predicted that all regions will experience negative growth for the first time in 2020. In China, where the rebound from the sharp recession is underway in the first quarter, growth is expected at 1.0 per cent in 2020, backed in part by policy stimulus.
"India 's economy is projected to contract by 4.5 per cent after a longer lockdown time and slower recovery than anticipated in April," the IMF said.
The IMF's record reveals that this is the lowest ever for India since 1961.
Beyond that year the IMF does not have the details. Yet India 's economy is projected to bounce back in 2021 with strong growth of six per cent, it said. The growth rate for India in 2019 was 4.2 per cent.
India's most recent 2020 estimate is a whopping -6.4 per cent lower than the IMF 's April prediction. The expected 6 per cent growth rate for 2021 is -1.4 per cent lower than its April estimate.
"The pandemic of the Covid-19 forced economies into a Great Lockdown that helped to contain the virus and save lives but also caused the worst recession since the Great Depression," Gopinath said.
Over 75 per cent of countries are now 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 highly uncertain and the impact on sectors and countries uneven, she added.
In a blog post, Gopinath said that this global crisis like no other will have a recovery like no other. “First, the unprecedented global sweep of this crisis hampers recovery prospects for export-dependent economies and jeopardises the prospects for income convergence between developing and advanced economies,” she said.
“We are projecting a synchronised deep downturn in 2020 for both advanced economies (-8 per cent) and emerging market and developing economies (-3 per cent; -5 per cent if excluding China), and over 95 per cent of countries are projected to have negative per capita income growth in 2020,” she added.
“The cumulative hit to GDP growth over 202021 for emerging market and developing economies, excluding China, is expected to exceed that in advanced economies,” Gopinath said.
In her blog, she noted that a high degree of uncertainty surrounds this forecast, with both upside and downside risks to the outlook.
On the upside, better news on vaccines and treatments, and additional policy support can lead to a quicker resumption of economic activity. On the downside, further waves of infections can reverse increased mobility and spending, and rapidly tighten financial conditions, triggering debt distress, she said.
“Geopolitical and trade tensions could damage fragile global relationships at a time when trade is projected to collapse by around 12 per cent,” Gopinath said.