The International Monetary Fund (IMF) has published its new growth forecasts as part of the World Economic Outlook Report. The IMF has retained its FY22 growth forecasts for India at 9.5 percent but it has lowered the global growth projection for 2021 to 5.9 percent. It has cited the possibility of aggressive COVID variance, and dangerous divergences in global economic prospects as the reason for the concern. The report also said the prolonged impact of COVID could lead to global GDP dropping by a significant $5.3 trillion over the next five years.
To talk about the economic outlook for India and the world in-depth, CNBC-TV18’s Shereen Bhan caught up with Gita Gopinath, the chief economist at IMF.
On the global growth forecast, Gopinath said they have a very small downgrade for the world, it is a .1 percent downgrade. “We were at 6 percent, before going down to 5.9 percent. What we have seen is weaker momentum in several countries in these last few months. Indeed, in terms of the pandemic itself, we see overall global numbers coming down. It's not down to levels we would like it to be, but it is in the right direction but the risks remain. I would say that, that in terms of the near term, the risks come from supply disruptions, and the supply-demand mismatches that we are seeing in different sectors, including the prolonged semiconductor chip shortage, in terms of shipping costs going up dramatically long delivery lags. More recently, in terms of the energy price spikes that we are seeing in many parts of the world, including the concerns with coal supply in India."
When asked if there was an expectation of an upward bias to their growth projections for India, Gopinath said, “We had a downgrade for India in July because of the catastrophic second wave. Now, we are seeing recovery in manufacturing and services. It is not back to where it would have been in the absence of the pandemic. "
"Again, we have to keep in mind that there is a lot of recovery that just comes from bouncing back from a very deep recession last year, where it was minus 7.3 percent. So, there is again, a distance to go in terms of where the economy would have been in the absence of the pandemic, you can see that in employment numbers, you can see that in the activities of MSMEs. So again, it's an incomplete recovery but we are seeing recovery, nevertheless, and the growth numbers reflect the fact that you're coming off a very deep recession last year,” she added.
One of the concerns that the IMF had was the impact of the pandemic on banks on NBFCs, so when asked if that was less of a concern today for India, she said, “I would say it remains a concern. It is good that the recovery has started from the big shot that hit the economy, the second wave, so that certainly helps. If you look at listed firms, they are certainly doing better than maybe was expected. But if you look at MSMEs, I would say that the stress is still there, the risk in terms of the increase in non-performing loans remains. And this just adds on top of what was their pre-pandemic in terms of non-performing loans..”
Answering the question if there was a case for more intervention by the government in India, she said, “We see grounds for having some more fiscal stimulus, so an additional fiscal push this year, which then you can unwind in future years. So, we believe that more can be done on the fiscal front. In terms of the financial sector, it is important to have a proper accounting of what's going on in terms of non-performing loans."
When asked about the impact of commodity price hikes and shortages of semiconductors on global inflation, she said, in the energy space, we are certainly seeing prices go up in many parts of the world, natural gas prices are at a record high and we have seen that spill over into the price of coal and to the price of oil.
For the full interview, watch the accompanying video