IMF sees India’s GDP contracting 10.3% this year, projects 8.8% growth in 2021

The Reserve Bank of India while announcing its monetary policy early this month, had forecast a 9.5 per cent contraction for the Indian economy in FY21, with risks to the downside. The central bank, however, expects the economy to bounce back with a growth rate of over 20 per cent starting the March quarter.

While the virus originating from China’s Wuhan province spread all over the world, bringing the global economy under unprecedented strain, China saved itself from a long-drawn economic slowdown by starting up economic activities even as the virus started spreading globally.

Except for China, where output growth is expected to remain positive in 2020 as well, output in both advanced economies and emerging market and developing economies is projected to decline this year.

IMF expects Chinese economy to remain in positive territory with a GDP growth of 1.9 per cent in 2020 and bounce back with a growth rate of 8.2 per cent in 2021.

In its latest update of World Economic Outlook, IMF has slashed India's 2020 GDP growth forecast to (-) 10.3 per cent from (-) 4.5 per cent growth projected in June this year.

The Indian economy contracted by a record 23.9 per cent for the April-June quarter, its slowest growth in four decades. Since then, various global agencies have revised India’s growth outlook downwards for the current fiscal.

According to the IMF, the global economy is still coming back from the depths of its collapse in the first half of 2020. Employment has partially rebounded after having plummeted during the peak of the crisis.

The recovery for the global economy will likely be long, uneven, and uncertain, with some economies starting to recover faster than anticipated, and some seeing worsening prospects. 

IMF upgraded its forecast for advanced economies for 2020 to (-) 5.8 per cent, followed by a rebound in growth to 3.9 per cent in 2021. For emerging market and developing countries (excluding China), it forecast a downgrade with growth projected to be (-) 5.7 per cent in 2020 and then a recovery to 5 per cent in 2021.

IMF has projected global economic growth at (−) 4.4 per cent in 2020, a less severe contraction than forecast in the June 2020. The revision reflects better-than anticipated second quarter GDP outturns, mostly in advanced economies, where activity began to improve sooner than expected after lockdowns were scaled back in May and June, as well as indicators of a stronger recovery in the third quarter. 

Global growth is projected at 5.2 per cent in 2021, a little lower than in the June 2020 WEO update, reflecting the more moderate downturn projected for 2020 and consistent with expectations of persistent social distancing. 

Following the contraction in 2020 and recovery in 2021, the level of global GDP in 2021 is expected to be a modest 0.6 per cent above that of 2019. 

The growth projections imply wide negative output gaps and elevated unemployment rates this year and in 2021 across both advanced and emerging market economies, IMF pointed out.

After the rebound in 2021, global growth is expected to gradually slow to about 3.5 per cent into the medium term. This implies only limited progress toward catching up to the path of economic activity for 2020–25 projected before the pandemic for both advanced and emerging market and developing economies. It is also a severe setback to the projected improvement in average living standards across all country groups. 

The pandemic will reverse the progress made since the 1990s in reducing global poverty and will increase inequality. People who rely on daily wage labor and are outside the formal safety net faced sudden income losses when mobility restrictions were imposed. Among them, migrant workers who live far from home had even less recourse to traditional support networks. Close to 90 million people could fall below the $1.90 a day income threshold of extreme deprivation this year. In addition, school closures during the pandemic pose a significant new challenge that could set back human capital accumulation severely, IMF pointed out.