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The Cues to the Investors- Economy as a whole ! IMF story
The Indian Economy has made a turnaround especially after the disastrous pandemic disruption and with the timely and bountiful incentives and sops announced by the GOI to various sectors the stimulation to the growth path was facilitated. The GST tax collections during the month of March 2021 have been quite unexpected-a real boost indeed!
The FPIs and DIIs continue to invest in markets although FPIs did sell in the past week to invest in U S Debt markets. U.S, China and India are the three countries which have shown remarkable resilience after the down trend due to Covid ’19.
So there is every reason for the Investors to cheer about in terms of the behavior of the bourses and be optimistic although the Covid epidemic is again threatening with its ugly nose world over as well as in India. The Vaccine is the only redeeming factor which would come handy in dealing with the disaster.
The International Monetary Fund (IMF) in its latest World Economic Outlook update for April 2021, has revised India’s GDP growth forecast. The IMF now expects India’s economy to grow by 12.5 percent in FY22, 100 basis points higher than its last forecast in January.
It expects India’s GDP growth at 6.9 percent in FY23, about 10 basis points higher than the previous forecast. According to IMF, India’s economy contracted by 8 percent in FY21. However, over the medium term, India’s growth rate is expected to stabilise around 6.5 percent by FY27, IMF said.
Overall, global economic recovery may be faster than earlier expected too. The improved outlook reflects the higher-than-expected growth outturns in the second half of the year for most regions after lockdowns were eased and as economies adapted to new ways of working, the agency said.
After an estimated contraction of 3.3 percent in 2020, the global economy is projected to grow at 6 percent in 2021, moderating to 4.4 percent in 2022, according to the IMF. The projections for 2021 and 2022 are 0.5 percentage point and 0.2 percentage point stronger than in the January 2021 WEO, reflecting additional fiscal support in a few large economies and the anticipated vaccine-powered recovery in the second half of the year.
“We are now projecting a stronger recovery in 2021 and 2022 for the global economy compared to our previous forecast, with growth projected to be 6 percent in 2021 and 4.4 percent in 2022. Nonetheless, the outlook presents daunting challenges related to divergences in the speed of recovery both across and within countries and the potential for persistent economic damage from the crisis,” said Gita Gopinath, Economic Counsellor and Director of Research at the IMF.
According to IMF, global growth is expected to moderate to 3.3 percent over the medium term—reflecting projected damage to supply potential and forces that predate the pandemic, including ageing-related slower labour force growth in advanced economies and some emerging market economies.
The advanced economies are seen growing by 5.1 percent in 2021, and 3.6 percent in 2022, as per the latest report. Emerging market and developing economies are seen growing by 6.7 percent in 2021, and 5 percent in 2022.
However, IMF has highlighted, the pace of recovery across economies will be uneven. “Multispeed recoveries are underway in all regions and across income groups, linked to stark differences in the pace of vaccine rollout, the extent of economic policy support, and structural factors such as reliance on tourism,” Gopinath said.
Among advanced economies, the United States is expected to surpass its pre-COVID GDP level this year, while many others in the group will return to their pre-COVID levels only in 2022. Similarly, among emerging market and developing economies, China had already returned to pre-COVID GDP in 2020, whereas many others are not expected to do so until well into 2023.
The divergent recovery paths are likely to create significantly wider gaps in living standards between developing countries and others, compared to pre-pandemic expectations. “Cumulative per capita income losses over 2020–22, compared to pre-pandemic projections, are equivalent to 20 percent of 2019 per capita GDP in emerging markets and developing economies (excluding China), while in advanced economies the losses are expected to be relatively smaller, at 11 percent,” IMF said.
This has also reversed gains in poverty reduction, with an additional 95 million people expected to have entered the ranks of the extreme poor in 2020, and 80 million more undernourished than before, according to IMF.
Although medium-term losses for the global economy are expected to be smaller than in the aftermath of the global financial crisis, the cross-country pattern of damages is likely to be different this time, with low-income countries and emerging markets suffering more compared to the fallout from the crisis a decade earlier when advanced economies were harder hit, IMF noted.
The report suggested that averting divergent outcomes will require, above all, resolving the health crisis everywhere. At the same time, economic policies will need to limit persistent damage, secure the recovery, and prepare for the post-COVID world, while being mindful of available policy space. “Already, unprecedented economic policy actions have prevented far worse outcomes—our estimates suggest last year’s severe collapse could have been about at least three times as large had it not been for the swift policy support worldwide,” Gopinath said.
There are risks to these growth projections, depending on the pace and availability of vaccination, pandemic resurgence, tighter financial conditions, extended scarring from substantial and persistent damage to supply potential, geopolitical, trade, and technology risks, among others.
The Upside & the Downside
In an upside scenario to this outlook, assuming vaccine rollout occurs about 10 percent faster than in the baseline, IMF expects global GDP may grow faster than baseline by just under 0.5 percentage point in 2021, and about 1 percentage point above baseline in 2022.
In a downside scenario, assuming supply bottlenecks in production, logistical problems with vaccine delivery, as well as more well-entrenched existing variants or additional mutations, IMF warned that global growth may slow by about 1.5 percentage points more than in the baseline in 2021, and by about 1 percentage point below baseline in 2022.