From an estimated 1.9% growth forecast for the current financial year (2020-21) two months ago, to 4.5% contraction, the International Monetary Fund (IMF) on Wednesday gave the steepest downgrade to India’s economy due to a slower than expected economic recovery and a longer period of Covid-19 related lockdown.
No other economy has got a 640 basis point or 6.4 percentage point downgrade in the forecast in a matter of just two months from mid April to June. While USA has got a 210 bps cut in growth forecast, France 530 bps, Brazil, 380 bps, and neighbouring China only 20 bps.
According to the Washington-based lender, China will, however, manage to grow at 1% supported in part by policy stimulus.
For 2021-22, however, the IMF has projected a V-shaped recovery for India, estimating the GDP growth to be at 6% but has warned that there is a higher-than-usual degree of uncertainty around its forecast owing to the assumptions made regarding the fallout from the COVID-19 pandemic.
“India’s economy is projected to contract by 4.5% following a long period of lockdown and slower recovery than anticipated in April,” the IMF said in its latest World Economic 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 tightened financial conditions, triggering debt distress,” IMF’s Chief Economist Gita Gopinath said in her blog accompanying the report.
India’s economy grew 3.1% in the quarter ending March 2020, while its growth for the full financial year 2019-20 stood at 4.2%, the lowest in the past 11 years.
The IMF also said that more than 90% of emerging market and developing economies projected to register negative per capita income growth in 2020.
“In countries with high shares of informal employment, lockdowns have led to joblessness and abrupt income losses for many of those workers (often where migrants work far from home, separated from support networks),” it said.
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.