Economy to contract 3.2% in FY21: WB 

#GS3 #Economy 

The Indian economy is expected to contract by 3.2% in this fiscal year as a result of the COVID-19 pandemic and its associated restrictions, the World Bank said in its Global Economic Prospects (GEP) June 2020 report. Growth is forecast at 3.1% next year. 

  • The world economy, as a whole, is set to witness its deepest recession since World War II, with a forecasted contraction of 5.2% this year — some 60 million could be pushed into extreme poverty. 
  • With updated data now available, this number could be 70-100 million, a Bank economist told reporters on a briefing call on Monday. 
  • Emerging market and developing economies (EMDEs) are expected to contract by 2.5% this year, and economic activity in advanced economies is forecast to shrink by 7%, as domestic supply and demand, finance and trade have been disrupted due to the pandemic.  
  • Countries most reliant on global trade, tourism, external financing and commodity exports are likely to be hit the hardest. 
  • In the baseline scenario, global growth is set to rebound at 4.2% in 2021, with EMDEs growing at 4.6% and advanced economies growing at 3.9%.  
  • This, however, is the baseline forecast and assumes that pandemic-induced domestic restrictions will be lifted by mid-year in advanced economies and a bit later in EMDEs.  
  • The downside scenario is more severe — the global economy could shrink this year by as much as 8% (5% for EMDEs), followed by weak recovery at just above 1% growth next year. 

India grew 4.2% in FY20 

  • India’s growth is estimated to have slowed to 4.2% in FY 2019-20 (year ended March 31, 2020).  
  • Output is expected to contract by 3.2% (so growth is -3.2%) in FY2020-21, as the impact of the pandemic (the restrictions on activity) will largely fall in this year, despite the fiscal and monetary stimulus. 

Balance sheet stress 

  • The growth forecast for this fiscal year is 9 percentage points lower than the GEP forecasts from January 2020, when the forecast for this fiscal was a (positive) 5.8% — the world was not yet in the grip of the pandemic. 
  • Spillover effects from weak global growth and balance sheet stress are also weighing down on economic activity, as per the report.  
  • India is forecast to see some recovery next year and grow at 3.1%. 
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