World Economic Outlook for 2021

News: The latest edition of the International Monetary Fund’s (IMF) World Economic Outlook has cut its 2021 growth forecast for India to 9.5% from 12.5% estimated earlier in April 2021. While re-calibrating its forecast IMF considered two major factors which are access to vaccines and risk of new Corona-variants.

Details:

  • Indian economy is expected to grow by 9.5% in 2021 and 8.5% in 2022 (larger than the 6.9% it had projected in April). In 2020, India’s economy witnessed an estimated contraction of 8%.
  • The IMF has cut its growth forecast because of the Covid-19 Second Wave that hit the recovery momentum, damaging consumer confidence and rural demand.
  • Global Economy retained its global growth forecast at 6% for the year 2021, and it is expected to grow at 4.9% for the year 2022. In 2020, the global economy contracted by 3.3%
  • IMF revised up its predictions of global trade volume growth by a sharp 130 bps for 2021 to 9.7% and 50 bps for 2022 to 7%.
  • India is set to benefit from an expected rise in global trade prospects once its supply side gains traction.

Recommendations of IMF:

  • Emerging markets should prepare for possibly tighter external financial conditions by lengthening debt maturities where possible and limiting the buildup of unhedged foreign currency debt.
  • Central banks should avoid premature tightening policies when faced with transitory inflation pressures but should be prepared to move quickly if inflation expectations show signs of de-anchoring.
  • Fiscal policy should continue to prioritize health spending, including on vaccine production and distribution infrastructure, personnel, and public health campaigns, to boost take-up.
  • Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy.