Less than two months after asserting that “global growth appears to be bottoming out”, the pandemic induced ‘Great Lockdown’ has forced the IMF to junk all its previous projections for economic output in 2020. Faced with the stark reality of sweeping shutdowns of almost entire economies worldwide, the fund last week acknowledged that the current “crisis is like no other”. Forecasting the sharpest contraction in world output since the Great Depression of the 1930s, the IMF slashed its projection by 6.3 percentage points from its January forecast for 3.3% growth to a 3% decline. In contrast, the recession of 2009 saw world output contract by a mere 0.1%. That the IMF was blindsided by the comments from Chinese authorities and WHO is clear from the fact that as recently as February 22, the fund’s chief, Kristalina Georgieva, told G20 Finance Ministers that “global growth would be about 0.1 percentage points lower” than forecast in January. China’s GDP, she projected, would expand by 5.6% this year, 0.4 percentage points slower than assumed in January. Last week, the IMF slashed China’s forecast to a growth of 1.2%, citing data on industrial production, retail sales, and fixed asset investment that, it said, suggested a contraction of about 8% in the first quarter. China reported a 6.8% first- quarter contraction. Still, in projecting an annual expansion in Asia’s largest economy, the fund is rather optimistically foreseeing a sharp rebound in activity over the rest of the year.
On India, the IMF has cut its projection for growth in the fiscal year that started on April 1, from January’s 5.8%, to 1.9%. This again appears predicated on the fund’s baseline scenario that assumes that the pandemic would ‘fade in the second half of 2020’, allowing containment efforts to be unwound and economic activity to normalise. Another key assumption by the IMF’s economists is the availability of policy support to nurture the revival once activity restarts. Jettisoning its storied fiscal conservatism, the fund’s chief economist, Gita Gopinath, has advocated ramping up a broad-based and coordinated stimulus once the disease has been contained, a measure that would help avoid the errors of the Great Depression years when premature efforts to prune budget deficits prolonged the downturn. In this context, India’s fiscal measures pale in terms of scale when compared with what several other nations have undertaken. Given the size of the informal sector in India as well as the anticipated prolonged disruption in labour supply even in more formal parts of the economy, the Centre needs to proactively commit to a substantial stimulus package in order to ensure that once the economy reopens, it has the legs to run.
