The COVID-19 pandemic is having a “severe” effect on the world economy and is expected to cause a -3% change (i.e., a contraction) in global output in 2020, “much worse” than the 2008-09 financial crises, as per the International Monetary Fund’s (IMF) World Economic Outlook (WEO). India’s growth is expected to dip to 1.9% in 2020 and rebound to 7.4% in 2021, as per the WEO, which was released by the Fund on Tuesday.
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India’s growth projection for 2020 is 3.9% less than what was projected for the country in the January update to the WEO while its rebound in 2021 is 0.9 % higher than the January projection (for India, forecasts on a fiscal year basis). World growth rates have been revised downwards by more than 6 percentage points since the January WEO update.
Normally, the World Bank and IMF headquarters see several thousand policy-makers , journalists, finance ministers and think tank representatives at this time of year. However, the 2020 Spring Meetings have been reduced to a few sessions held online.
“A rare disaster, a coronavirus pandemic, has resulted in a tragically large number of human lives being lost. As countries implement necessary quarantines and social distancing practices to contain the pandemic, the world has been put in a Great Lockdown ,” the IMF’s chief economist, Gita Gopinath, said in a statement released to reporters prior to a virtual press briefing on Tuesday to mark the release of the WEO report.
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“The magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes,” she said.
Assuming that the pandemic fades in the second half of this year, with containment efforts gradually easing up, the world economy is projected to grow at 5.8% in 2020 as economic activity normalizes, aided by policy, the IMF said. The recovery in 2021 is partial, Ms Gopinath said, and below the pre-virus estimates for 2021.
“The cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around 9 trillion dollars, greater than the economies of Japan and Germany, combined,” she said.
If the pandemic does not recede in the second half of 2020, global GDP would fall an additional 3% in 2020 and if the pandemic continues into 2021, global GDP may fall next year by an additional 8% relative to the baseline scenario, as per Ms Gopinath.
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The global forecast is characterized by “extreme uncertainty”, the IMF warned. The economic impact of the disease depends on a number of factors and their unpredictable interaction, including the pandemic’s pathway, the intensity and effectiveness of containment efforts, supply chain disruptions, spending pattern changes, behavioural changes (for example around people visiting shopping malls and public transport use), significant tightening of global financial market conditions and so forth.
“Necessary measures to reduce contagion and protect lives will take a short-term toll on economic activity but should also be seen as an important investment in long-term human and economic health,” the IMF said, calling on policymakers to make targeted fiscal, monetary and financial sector interventions to support impacted households and businesses. Fiscal measures should be two-fold, cushioning the impact on the most-exposed households and businesses, and reducing firm closures , i.e., preserving economic relationships.
Many countries will face multi-layered crises, including health shocks, domestic economic disruptions, reversal of capital flows, plummeting external demand, and a collapse of commodity prices.
“Risks of a worse outcome predominate,” the WEO report said.
The fiscal response has been “swift and sizeable” in many advanced economies, the IMF said, with many emerging economies also announcing fiscal support to impacted workers and sectors. Fiscal support will need scaling up, if activity does not pick up sufficiently once restrictions are lifted or if economic activity stoppages are persistent.
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Monetary stimulus by large central banks and liquidity facilities to reduce systemic stress have helped limit the shock, positioning the economy for a better recovery, the IMF said.
“Strong multilateral cooperation is essential to overcome the effects of the pandemic, including to help financially constrained countries facing twin health and funding shocks, and for channeling aid to countries with weak healthcare systems,” it said.
Emerging Asia only region of positive 2020 growth
Emerging Asia is projected to be the only region that grows in 2020, at a rate of 1.0% - still more than 5 percentage points below the previous decade’s average. In China, where the coronavirus’s impacts were first recorded this year, first quarter economic activity could have contracted by 8% year on year. China is projected to grow at 1.2% in 2020 and 9.2% in 2021.
Apart from India’s modest 1.9% in 2020, Indonesia is expected to grow at 0.5%,while others in the region experience contractions.
Advance economies will have a output change of -6.1% (i.e., a contraction) in 2020 followed by 4.5% in 2021. The U.S. is projected to contract by 5.9% this year and grow by 4.7% next year, while the Euro area, will contract by 7.5% this year and grow by 4.7% next year.