India is set to witness the worst contraction this year, shrinking 10.3 percent due to a collapse in consumption and investment, the International Monetary Fund said Tuesday. The forecast was sharply revised from a 4.5 percent decline seen in June. The economy is expected to rebound with 8.8 percent growth next year.
The global economy is set to contract less severely than initially feared due to better-than-expected outcomes in the main economies in the second quarter despite the lockdowns to battle the coronavirus pandemic, but the outlook remains clouded with uncertainty, especially for emerging markets, IMF said.
In its latest World Economic Outlook, the lender forecast a 4.4 percent contraction for the world economy this year, which is less severe than the 5.2 percent decline seen in June. The global economy is expected to rebound with 5.2 percent growth next year, which is less than the 5.4 percent expansion seen earlier.
The IMF also cautioned about the harm that growing restrictions on trade and investment and rising geopolitical uncertainty could cause to the recovery. Gopinath expressed hope that faster and more widespread availability of tests, treatments, vaccines, and additional policy stimulus can significantly improve outcomes. She expects the crisis to leave scars well into the medium term as labor markets take time to heal, investment is held back by uncertainty and balance sheet problems, and lost schooling impairs human capital. Consequently, the IMF expects global growth to cool to about 3.9 percent beyond 2021.
The lender estimates the cumulative loss in output relative to the pre-pandemic projected path to grow from $11 trillion over 2020-21 to $28 trillion over 2020-25, representing a severe setback to the improvement in average living standards across all country groups. The IMF said there is a lot to be done to ensure a sustained recovery and sought significant innovation on the policy front, at both the national and international levels to recover from the crisis.