IMF raises global GDP projection but does not rule out downside risks

by Autocar Pro News Desk , 07 Apr 2021


The International Monetary Fund has raised its growth projections for India and the world. It expects India’s GDP to grow 12.5 percent in 2021. However, the projections did not rule out downside risks to estimates, given the resurgence in the Covid-19 infection.

Globally, the IMF is projecting a 6 percent growth for the global economy in 2021, moderating to 4.4 percent in 2022. This is a big turnaround from an estimated contraction of 3.3 percent in 2020 when the world was hit by pandemic.

IMF chief economist Gita Gopinath said, So relative to our January forecast, we are upgrading growth to 6 percent for 2021 and 4.4 percent for 2022. This reflects the additional fiscal support provided in the United States, vaccination efforts that are going to lead to a strengthening of recovery in the second half of this year, and also the continued resilience of economic activity to the pandemic in many parts of the world.”

Gopinath however stressed that, “The biggest risk right now is still the pandemic, if there are new virus variants that evade the vaccine, then that could lead to a sharp downgrade. But if, on the other hand, there's faster roll out of vaccinations, then that could uplift the outlook.”

“The second big risk is to financial conditions. We see multispeed recoveries and we have seen interest rates go up. If interest rates go up even further in a more disorderly fashion than that could have negative implications for several countries, especially for some highly vulnerable emerging and developing economies,” said Gopinath

Policy makers will need to continue supporting their economies while dealing with more limited policy space and higher debt levels than prior to the pandemic, Gopinath added. She also urged central banks to keep access to money easy in the current environment, “Monetary policy should also remain accommodative while proactively addressing financial risks that we do see using macro prudential tools.”

The IMF report highlighted that faster progress with vaccinations can uplift the forecast, while a more prolonged pandemic with virus variants that evade vaccines can lead to a sharp downgrade.