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IMF’s Growth Projections - July 2021

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July 29, 2021

Why in news?

  • IMF (International Monetary Fund) released the latest edition of its flagship World Economic Outlook (WEO) report.
  • The IMF has sharply scaled down India’s economic growth projection.

How is India’s growth projections?

  • The IMF (July 2021) has downgraded India’s economic growth projection by 300 basis points to 9.5% for the current financial year.
  • It is down from the 12.5% estimated earlier in April 2021.
  • IMF said the downward revision is owing to “lack of access to vaccines” and possibility of renewed waves of coronavirus.
  • IMF's projections for India in the current fiscal are similar to the RBI’s, but moderately optimistic than those of World Bank.
  • [The World Bank projected India's economy to grow at 8.3% in 2021 and 7.5% in 2022.]
  • However, IMF sees India's GDP growing by 8.5%, 160 basis points higher than its earlier projection, in the next financial year (FY23).

What do the global recovery trends imply?

  • Three months since its April 2021 forecast, the IMF projects the global economy to expand at an unchanged pace of 6% in 2021.
  • The IMF projects Advanced Economies to grow by 5.6% in 2021, 0.5 percentage point quicker than forecast in April 2021.
  • Meanwhile, emerging market and developing economies are seen expanding by 6.3%, 0.4 percentage point slower than projected in April.
  • Evidently, there is wide variance in the global recovery from the economic strains caused by the pandemic.
  • A key factor behind this divergence of the world’s economies into two blocs is vaccine access and the pace of vaccination coverage.
  • In countries with high vaccination coverage, such as the UK and Canada, the economic impact would be mild.
  • However, countries lagging in vaccination, such as India and Indonesia, would suffer the most among G20 economies.
  • The prolonged weakness in economic activity is assumed to inflict persistent damage on economies’ supply capacity.

What lies ahead for India?

  • With just a little over 7% of the population fully vaccinated, India significantly lags the estimated global average of almost 14%.
  • The fact that IMF has downgraded its outlook so substantially reflects the extent to which the second wave has severely impaired the growth momentum.
  • On the other hand, inflation is posing a challenge, and demand is yet to regain pace.
  • Given this, India’s policymakers have little option but to hasten the vaccine roll-out on a war footing and renew the economic activities.

 

Source: Business Standard, The Hindu

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