World economy to contract by 3%: IMF

Pack of cards:Magnitude of collapse in activity is unlike anything seen in our lifetimes, says Gita Gopinath.Reuters

Pack of cards:Magnitude of collapse in activity is unlike anything seen in our lifetimes, says Gita Gopinath.Reuters  

India’s growth projected to rebound to 7.4% in 2021 from 1.9% in 2020

The COVID-19 pandemic is having a ‘severe’ effect on the world economy which is expected to contract by 3% 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 released by the IMF on Tuesday. India’s growth projection for 2020 is 3.9% less than what was projected in the January update to the WEO while its rebound in 2021 is 0.9 % higher than the January projection (for India, forecasts are on a fiscal year basis). World growth rates have been revised downwards by more than six percentage points since the January WEO update.

“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. “The magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes,” she said.

Assuming 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 2021 as economic activity normalises, 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, greater than the economies of Japan and Germany, combined,” she said.

The global forecast is characterised 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, 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.

Emerging Asia is projected to be the only region that grows in 2020, at a rate of 1% — still more than 5 percentage points below the previous decade’s average. In China, where the coronavirus’s impacts were first recorded this year, the 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.

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