World Bank projects Indian economy to contract 3.2% in FY21

The World Bank on Monday projected the India’s economy to contract 3.2% in FY21 holding that stringent measures to restrict the spread of the coronavirus pandemic will heavily curtail activity in Asia’s third largest economy at a time the global economy is estimated to plunge into its worst recession since the World War II.

In its Global Economic Prospects report, World Bank said the contraction will largely materialize in FY21 and the Indian economy will recover to grow at 3.1% in FY22. “Spillovers from contracting global growth and balance sheet stress in the financial sector will also adversely impact activity, despite some support from fiscal stimulus and continued monetary policy easing,” it added.

The multilateral lending institution took note of measures taken by the Indian government including spending on health care to bolster the COVID-19 response, wage support, in-kind and cash transfers to lower-income households, deferral of tax payments, as well as loan and liquidity support for small businesses and financial institutions.

Most professional forecasters including Fitch, S&P, Goldman Sachs and UBS have projected the Indian economy to contract at least by 5% in FY21. India significantly reopened its economy starting Monday with resumption of operations at shopping malls, hotels and restaurants under the first phase of the end of the prolonged lockdown that began on 25 March. However, this comes at a time the country seen a spike in coronavirus cases with India surpassing Spain to the fifth spot among nations worst affected by the pandemic.

The World Bank said the swift and massive shock of the coronavirus pandemic and shutdown measures to contain it will lead to a contraction of the global economy by 5.2% in 2020. “This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges,” said World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu. “Our first order of business is to address the global health and economic emergency. Beyond that, the global community must unite to find ways to rebuild as robust a recovery as possible to prevent more people from falling into poverty and unemployment.”

Under the baseline forecast—which assumes that the pandemic recedes sufficiently to allow the lifting of domestic mitigation measures by mid-year in advanced economies and a bit later in Emerging Market and Developing Economies (EMDEs), that adverse global spillovers ease during the second half of the year, and that dislocations in financial markets are not long-lasting — global growth is forecast to rebound to 4.2% in 2021, as advanced economies grow 3.9% and EMDEs bounce back by 4.6%. “However, the outlook is highly uncertain and downside risks are predominant, including the possibility of a more protracted pandemic, financial upheaval, and retreat from global trade and supply linkages. A downside scenario could lead the global economy to shrink by as much as 8% this year, followed by a sluggish recovery in 2021 of just over 1%, with output in EMDEs contracting by almost 5% this year,” it added.

World Bank projects Indian economy to contract 3.2% in FY21 via @MasterMindUpdate
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