World Economic Outlook: IMF

• 28 Jul 2021

Why in News

The latest edition of the International Monetary Fund’s (IMF) World Economic Outlook has cut its 2021 growth forecast for India to 9.5% from 12.5% estimated earlier in April 2021.

• While re-calibrating its forecast IMF considered two major factors which are access to vaccines and risk of new Corona-variants.

Key Points

• Indian Economy:
  
  • Indian economy is expected to grow by 9.5% in 2021 and 8.5% in 2022 (larger than the 6.9% it had projected in April).
    
    • In 2020, India’s economy witnessed an estimated contraction of 8%.
  • The IMF has cut its growth forecast because of the Covid-19 Second Wave that hit the recovery momentum, damaging consumer confidence and rural demand.
• Global Economy:
  
  • Retained its global growth forecast at 6% for the year 2021, and it is expected to grow at 4.9% for the year 2022.
    
    • In 2020, the global economy contracted by 3.3%
• Global Trade Volume:
  
  • Revised up its predictions of global trade volume growth by a sharp 130 bps for 2021 to 9.7% and 50 bps for 2022 to 7%.
    
    • India is set to benefit from an expected rise in global trade prospects once its supply side gains traction.
• Suggestions:
  
  • Tighter External Financial Conditions:
    
    • Emerging markets should prepare for possibly tighter external financial conditions by lengthening debt maturities where possible and limiting the buildup of unhedged foreign currency debt.
  • Avoid Premature Tightening Policies:
    
    • Central banks should avoid premature tightening policies when faced with transitory inflation pressures but should be prepared to move quickly if inflation expectations show signs of de-anchoring.
  • Prioritize Health Spending:
    
    • Fiscal policy should continue to prioritize health spending, including on vaccine production and distribution infrastructure, personnel, and public health campaigns, to boost take-up.
      
      • Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy.

International Monetary Fund

• The IMF was set up along with the World Bank after the Second World War to assist in the reconstruction of war-ravaged countries.
  
  • The two organisations were agreed to be set up at a conference in Bretton Woods in the US. Hence, they are known as the Bretton Woods twins.
• Created in 1945, the IMF is governed by and accountable to the 189 countries that make up its near-global membership. India joined on 27^th December, 1945.
• The IMF's primary purpose is to ensure the stability of the international monetary system — the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other.
  
  • The Fund's mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability.
• Reports by IMF:
  
  • Global Financial Stability Report.
  • World Economic Outlook.
• World Economic Outlook
  
  • It is a survey by the IMF that is usually published twice a year in the months of April and October.
  • It analyzes and predicts global economic developments during the near and medium term.
  • In response to the growing demand for more frequent forecast updates, the WEO Update is published in January and July between the two main WEO publications released usually in April and October.

Source: IE