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.

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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