Clipped from: https://economictimes.indiatimes.com
The Washington-based multilateral lender said that the COVID-19 pandemic and the multi-phased lockdown imposed to curb its spread has resulted in a devastating blow to the Indian economy.
The World Bank expects India’s economy to contract 3.2% in the current fiscal year, a sharp downgrade from its April projection of 1.5%-2.8% growth, citing stringent lockdown and spill overs from weaker global growth.
The Global Economic Prospects (GEP) report released on Monday said the lockdown would severely curtail activity despite fiscal and monetary stimulus. Further, weaker global economic performance and balance sheet stress in the financial sector would also weigh on activity.
The latest report expects the economy to make a modest recovery to 3.1% growth in the next fiscal year, in comparison to the 6.1% expansion projected in the January report.
A number of firms including Goldman Sachs and Nomura have projected a contraction of as much as 5% for India in FY21.
The report said the pandemic’s impact would be particularly hard on emerging markets and developing economies (EMDEs) with large informal sectors, like India. It would “take an especially heavy humanitarian and economic toll on” these economies, it said
The vulnerabilities associated with informality like widespread poverty, deficient public health and medical resources, and weak social safety nets have amplified the economic shock to livelihoods from Covid-19, according to the GEP report.
Worst recession since World War II
The World Bank said the swift and massive shock of the coronavirus pandemic and shutdown measures to contain it have plunged the global economy into a severe contraction.
It said this would be the most synchronised contraction in per capita output for economies since 1870, estimating a 5.2% contraction in 2020 with a 4.2% rebound next year.
“That would represent the deepest recession since the Second World War, with the largest fraction of economies experiencing declines in per capita output since 1870,” the World Bank said.
According to the report, 90% of economies would be in recession, higher than levels seen during the Great Depression of the 1930s.
While the baseline scenario assumes the outbreak recedes in time to allow economies to lift mitigation measures by around mid-year, a predominant downside risk of a protracted pandemic could see world output shrinking by 8% this year with a sluggish 1% recovery in 2021.
“This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges,” said World Bank Group vice president for equitable growth, finance and institutions Ceyla Pazarbasioglu. “Our first order of business is to address the global health and economic emergency,” he added.
While advanced economies are likely to see a 7% contraction this year, the WB expects EMDEs to shrink by 2.5%, the first output contraction for the group since 1960.
“The Covid-19 recession is singular in many respects and is likely to be the deepest one in advanced economies since the Second World War and the first output contraction in emerging and developing economies in at least the past six decades,” said World Bank Prospects Group director Ayhan Kose.
The report noted that confirmed Covid-19 cases have been rising rapidly in EMDEs with extensive informality since the end of March, despite a low level of testing.
“Unconditional support programmes would be advisable in many EMDEs. Given their limited resources, low-income countries will require increased international funding for the effective implementation of such programmes,” it said.