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World Economic Outlook Report: IMF

 


Why in News

Recently, the International Monetary Fund (IMF) has released its World Economic Outlook (WEO) report.

Key Points

  • The Covid-19 pandemic is having a severe effect on the world economy. As countries implement necessary quarantines and social distancing practices to contain Covid-19, the world has been put in a Great Lockdown.
    • It is expected to cause a -3% change (i.e., a contraction) in global output in 2020, which is much worse than the 2008-09 financial crises.
    • Case of India: India’s growth is expected to dip to 1.9% in 2020 and rebound to 7.4% in 2021.
      • India’s growth projection for 2020 is 3.9% less than what was projected for the country in the January update to the WEO while its rebound in 2021 is 0.9 % higher than the January projection.
  • Growth Projections:
    • Emerging Asia:
      • Emerging Asia is projected to be the only region that grows in 2020, at a rate of 1.0% - still more than 5 percentage points below the previous decade’s average.
      • In China, where the coronavirus’s impacts were first recorded this year, first quarter economic activity could have contracted by 8% year on year. China is projected to grow at 1.2% in 2020 and 9.2% in 2021.
      • Apart from India’s modest 1.9% in 2020, Indonesia is expected to grow at 0.5%, while others in the region experience contractions.
    • Advanced economies:
      • Advanced economies will have an output change of -6.1% (i.e., a contraction) in 2020 followed by 4.5% in 2021.
      • The U.S. is projected to contract by 5.9% in 2020 and grow by 4.7% 2021.
      • The Euro area, will contract by 7.5% in 2020 and grow by 4.7% 2021.
  • Impact on Global GDP:
    • The cumulative loss to global Gross Domestic Product (GDP) over 2020 and 2021 from the pandemic crisis could be around 9 trillion dollars, greater than the economies of Japan and Germany, combined.
    • Assuming that the pandemic fades in the second half of this year, with containment efforts gradually easing up, the world economy is projected to grow at 5.8% in 2020 as economic activity normalizes, aided by policy.
    • If the pandemic does not recede in the second half of 2020, global GDP would fall an additional 3% in 2020.
  • Measures to combat the impact:
    • Policymakers have to make targeted fiscal, monetary and financial sector interventions to support impacted households and businesses.
    • Fiscal measures should be two-fold:
      • Cushioning the impact on the most-exposed households and businesses
      • Reducing firm closures , i.e., preserving economic relationships.
    • Monetary stimulus by large central banks and liquidity facilities to reduce systemic stress will help limit the shock, positioning the economy for a better recovery.
    • Strong multilateral cooperation is essential to overcome the effects of the pandemic, including to help financially constrained countries facing twin health and funding shocks, and for channeling aid to countries with weak healthcare systems.


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