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Home / Opinion / IMF forecasts stop-and-go impact

IMF forecasts stop-and-go impact

But India's dependence on informal workers may prove to be a drag on economy
As far as India is concerned, the forecast for 2020 has been cut from 4.2 per cent to 1.9 per cent. It is expected to climb back to 7.4 per cent in 2021. In these forecasts, it is quite clear that the IMF expects a stop-and-go impact on the economy.

The Editorial Board   |     |   Published 19.04.20, 08:27 PM

The latest forecasts made by the International Monetary Fund on world economic growth show a sharp reduction in the estimates. Global economic growth has been pruned from 2.9 per cent made last October down to negative 3.0 per cent in April 2020 for the current year. The rate of growth is expected to bounce back in 2021 to 5.8 per cent. The forecast for the United States of America has been changed from 2.3 per cent to minus 5.9 per cent for 2020. It will bounce back again to 4.7 per cent in 2021. For China, the forecast for 2020 has been snipped from 6.1 per cent to 1.2 per cent. The forecast for 2021 is 9.2 per cent. As far as India is concerned, the forecast for 2020 has been cut from 4.2 per cent to 1.9 per cent. It is expected to climb back to 7.4 per cent in 2021. In these forecasts, it is quite clear that the IMF expects a stop-and-go impact on the economy. This means that the effects of the Covid-19 stoppages will go away as soon as the lockdowns are lifted. There will be a V-shaped recovery. The 2021 figures look impressive because of the base effect of the low growth rates expected in 2020. The IMF has made it clear that these estimates may have to be revised considerably if the time taken to control the pandemic goes much beyond June 2020.

It may be true that some of the developed nations might be able to reset their economies reasonably quickly, although a sharp V-shaped recovery for them looks unlikely since the disruption of economic production has been unprecedented. The IMF forecasts have been made, it appears, on the basis of two assumptions. The first is that the Covid-19 infections will be contained by mid-summer. The second is that production can start immediately at full pace. There will be enough fiscal and monetary stimuli to create adequate demand and restore supply chains and credit lines. This, however, is unlikely for a country like India. The huge importance of the small and medium-sized enterprises, dependent on informal workers, will prove to be a drag on the economy long after Covid-19 is tamed. The fiscal and monetary interventions made so far seem inadequate compared to the interventions made in developed economies. Financial institutions are already under strain and nudging them to lend more cheap credit would add to their woes. India, unlike what the IMF thinks, may not have the opportunity to experience a V-shaped recovery. The recovery may be long and arduous.

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