The International Monetary Fund (IMF) on Wednesday lowered its growth forecast for the Indian economy in 2020 by 4.5 per cent, a “historic low”, citing economic slowdown due the two-month-long Covid-19-induced lockdown.
“India’s economy is projected to contract by 4.5 per cent following a longer period of lockdown and slower recovery than anticipated in April,” the IMF said, in an update to the World Economic Outlook it released in April.
IMF’s Chief Economist Gita Gopinath said, “We are projecting a sharp contraction in 2020 of – 4.5 per cent. Given the unprecedented nature of this crisis, as is the case for almost all countries, this projected contraction is a historic low.”
The fund, however, also said that India is expected to bounce back in 2021 with a 6 per cent growth rate.
In 2019, India’s growth rate was 4.2 per cent. The IMF’s latest projection is -6.4 per cent less than its April forecast, where it had projected a GDP growth rate of 1.9 per cent for the country in 2020. The projected growth rate of 6 per cent in 2021 is -1.4 per cent less than its April forecast.
On global front, the IMF has projected growth at 4.9 per cent in 2020, significantly worse than the 3% drop it had estimated in its previous report in April. It would be the worst annual contraction since immediately after World War II, IMF said.
For the United States, the IMF predicts that the nation’s GDP will plummet 8 per cent this year, even more than its April estimate of a 5.9 per cent drop. China’s growth this year is projected at 1 per cent while oil-producing economies such as Russia and Saudi Arabia are expected to contract by 6.6 per cetn and 6.8 per cent due to steep fall in oil prices.
In a blog post, Gopinath said that this global crisis like no other will have a recovery like no other.
“First, the unprecedented global sweep of this crisis hampers recovery prospects for export-dependent economies and jeopardises the prospects for income convergence between developing and advanced economies,” she said.
“We are projecting a synchronised deep downturn in 2020 for both advanced economies (-8 per cent) and emerging market and developing economies (-3 per cent; -5 per cent if excluding China), and over 95 per cent of countries are projected to have negative per capita income growth in 2020,” she added.
“The cumulative hit to GDP growth over 2020-21 for emerging market and developing economies, excluding China, is expected to exceed that in advanced economies,” Gopinath said.
She noted that a high degree of uncertainty surrounds this forecast, with both upside and downside risks to the outlook.
On the upside, she said the economic activity can see a quick resumption based on better news on vaccines and treatments, and additional policy support. 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.
(With inputs from PTI, AP)