Global, India output Set to Expand in FY22: World Bank

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Global economic output is projected to grow by 4% in 2021 assuming widespread roll­out of a COVID­19 vaccine throughout the year, as per the World Bank’s Global Economic Prospects (GEP) report released on Tuesday.  This projection is still 5% below pre-pandemic levels. India is expected to grow at 5.4% in fiscal year 2021­22 and 5.2% in fiscal 2022­23 after an expected contraction of 9.6% in fiscal 2020­21. India’s expected contraction in the current fiscal  is due to a sharp decline in household spending and private investment. There was severe income loss in the informal sector which accounts for four­-fifths of employment. 

 

However, recent data indicated that recovery in manufacturing and services was gaining momentum.  In 2021, the rebound from the low base is expected to be countered by subdued private investment growth due to financial sector weakness, the report said.  The global recovery has been dampened by the resurgence of the coronavirus but is expected to strengthen as confidence, trade and consumption start improving, supported by vaccinations. After an estimated 3.6% contraction in 2020, U.S. GDP is expected to grow at 3.5% in 2021 and the Euro area at 3.6%. Emerging market and developing economies (EMDEs) are expected to grow at an average of 4.6% in 2021­22 reflecting the above average rebound in China (forecasted at 7.9% and 5.2%, this year and the next).

 

‘Dramatic’ inequality Key elements to the strength of the economic recovery would be investment that embraces the changed economic environment and an ability to reduce inequality, World Bank Group President David Malpass told reporters on a briefing call on Tuesday. “The inequality of the downturn and the likely recovery is dramatic,” he said, adding that those with the lowest incomes were worst hit by the downturn and would likely take the longest to regain jobs, healthcare, vaccines and so forth in the post­ COVID economy. “Without course correction investment could remain feeble for years to come,” Mr. Malpass said, calling for governments, households and firms to respond to the new economic realities — protecting the most vulnerable and supporting policies that allow capital, labour, skills and innovation to shift to new purposes (such as green sectors).

 

There has been a “massive increase” in global debt because of the pandemic with EMDE government debt set to increase by 9 percentage points of GDP in 2020, the report noted. India’s government debt is expected to rise by 17 percentage points of GDP while service output shrinks over 9%. Private sector debt is also expected to rise sharply. The South Asian region’s economy is expected to contract  6.7 % in 2020 due to the pandemic. This was led by India’s deep recession, where the economy was already weakened by the stress in non­bank financial companies, the report said.

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