The International Monetary Fund (IMF) has downgraded India's Gross Domestic Product (GDP) growth projections for the current financial year to 9.5 per cent compared with its April estimates of 12.5 per cent owing to the disruptions caused due to the second wave of the COVID-19 pandemic.
For 2022-23 though, IMF has revised India's growth projections upwards to 8.5 per cent compared with its earlier estimate of 6.9 per cent. The global economy is projected to grow at 6.0 per cent in 2021 and 4.9 per cent in 2022, IMF said.
IMF also attributed the rising inflation to the "unusual pandemic related development" and price "supply-demand mismatch" and advised Central banks to avoid tightening. The IMF also maintained that inflation will revert to pre-pandemic levels in most countries by 2022.
In its World Economic Outlook for July released today, the IMF said, "Recovery has been set back severely in countries that experienced renewed waves - notably India."
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"Growth prospects in India have been downgraded following the severe second COVID wave during March-May and expected slow recovery in confidence from that setback," IMF observed.
IMF pointed out in the report that low vaccine coverage may cause a severe impact on India. "In countries with high vaccination coverage, such as the United Kingdom and Canada, the impact would be mild; meanwhile countries lagging in vaccination, such as India and Indonesia, would suffer the most among G20 economies," the world economic outlook added.
Among the advanced economies, IMF expects the additional expenditure on infrastructure to "lift 2021 US GDP growth by 0.3 percentage point and 2022 growth by 1.1 percentage points."
"Growth prospects have been revised up for 2021-22 from expected further normalization in the second half of 2021 as vaccine rollout proceeds and with additional fiscal support. Japan is anticipated to see a stronger rebound in the second half of 2021, as vaccination proceeds and the economy fully reopens, improving its growth forecast for 2022. Similar strengthening momentum is expected in France, Germany, Italy, and Spain later this year, carrying over into 2022," the Outlook adds.
"Forecast for the emerging markets and developing economies has been revised down by 0.4 percentage point in 2021 compared with the April WEO, largely because of growth markdowns for emerging Asian economies," IMF said. China's 2021 forecast is revised down 0.3 percentage points on scaling back of public investment and overall fiscal support, it added.
On price rise, the report said, "Elevated inflation is also expected in some emerging market and developing economies, related in part to high food prices. Central banks should generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying price dynamics."
The agency raised a major concern on vaccine access. "Vaccine access has emerged as the principal fault line along which the global recovery splits into two blocs: those that can look forward to further normalization of activity later this year (almost all advanced economies) and those that will still face resurgent infections and rising COVID death tolls."
"The recovery, however, is not assured even in countries where infections are currently very low so long as the virus circulates elsewhere," the World Economic Outlook added.
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