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The Editorial Analysis: Bumps Ahead

 

World Economic Outlook: Relevance

  • GS 3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

 

World Economic Outlook: Context

  • In the latest World Economic Outlook report, IMF has reduced the global GDP forecast to 3.6% from the estimate of 6.1% for 2021.

 

Reasons for reduced global growth

  • Invasion of Ukraine has significantly dampened post-COVID recovery prospects.
  • Fresh pandemic-driven lockdowns in China’s key manufacturing and trade hubs.
  • The reduced global forecast is much more uncertain than usual due to the ‘unprecedented nature of the shock’ to the world economy.
  • Growth could slow much more while inflation could turn out higher than expected.

 

The Editorial Analysis: Bumps Ahead_40.1

 

GDP forecast for India

  • IMF expects India’s retail inflation to now average above the RBI’s tolerance threshold at 6.1% and the current account deficit to touch 3.1% this fiscal year.
  • Reasons: higher oil prices, inflation that would exacerbate weak domestic demand, and the likelihood of a drag on net exports.
  • A corollary risk from higher food and fuel prices in emerging economies is heightened social unrest.
  • IMF has further said that ordinary families’ budgets are being strained to the breaking point.
  • IMF has mooted decisive actions from central banks to stem inflation worries, besides warning that monetary policy tightening would raise debt servicing costs and put many low-income countries in distress.
  • IMF also expects employment and output to persist below pre-COVID trends till as far as 2026, amid a further dip in global growth after 2023.
  • Recommendations: Smoothen interest rate hikes, spur consumption, manage fragile fiscal math and currency fluctuations amid volatile foreign capital flows.
  • Devise a medium-term action plan to minimise the scarring effects of this ‘crisis upon a crisis’.

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