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IMF reiterates India GDP forecast, warns of global inflation risks

In its latest World Economic Outlook report, the multilateral agency cut global growth forecast for calendar year 2021 by 0.1 percentage point to 5.9 percent.

October 12, 2021 / 08:22 PM IST

The International Monetary Fund (IMF) on October 12 reiterated its gross domestic product outlook for India at 9.5 percent in FY2021-22 and 8.5 percent in FY2022-23, on the back of steady recovery post the second wave of the Covid-19 pandemic.

However, in its latest World Economic Outlook (WEO) report, the multilateral agency cut the global growth forecast for calendar year 2021 by 0.1 percentage point to 5.9 percent

"The outlook for the low-income developing country group has darkened considerably due to worsening pandemic dynamics. The downgrade also reflects more difficult near-term prospects for the advanced economy group, in part due to supply disruptions,” said Gita Gopinath, Chief Economist at IMF.

"Partially offsetting these changes, projections for some commodity exporters have been upgraded on the back of rising commodity prices. Pandemic-related disruptions to contact-intensive sectors have caused the labour market recovery to significantly lag the output recovery in most countries,” the Indian-American economist added.

Observing that the dangerous divergence in economic prospects across countries remains a major concern, she said aggregate output for the advanced economy group is expected to regain its pre-pandemic trend path in 2022 and exceed it by 0.9 percent in 2024.

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"By contrast, aggregate output for the emerging market and developing economy group (excluding China) is expected to remain 5.5 percent below the pre-pandemic forecast in 2024, resulting in a larger setback to improvements in their living standards,” she added.

Noting that a principal common factor behind these complex challenges is the continued grip of the pandemic on global society, Gopinath said that the foremost policy priority is therefore to vaccinate at least 40 percent of the population in every country by end-2021 and 70 percent by mid-2022.

"This will require high-income countries to fulfill existing vaccine dose donation pledges, coordinate with manufacturers to prioritise deliveries to COVAX in the near-term and remove trade restrictions on the flow of vaccines and their inputs," she said.

At the same time, closing the $20 billion residual grant funding gap for testing, therapeutics and genomic surveillance will save lives now and keep vaccines fit for purpose. Looking ahead, vaccine manufacturers and high-income countries should support the expansion of regional production of COVID-19 vaccines in developing countries through financing and technology transfers, she said.

The WEO report also cautioned that the global economy was entering a phase of inflationary risk due to high commodity prices and that central banks need to be “very, very vigilant” and take early action to tighten monetary policy should price pressures prove persistent.

The IMF forecast that global inflation will rise sharply towards the end of the year, moderate in mid-2022 and then fall back to pre-pandemic levels.

The fund said central banks should generally ignore higher prices that stemmed from energy price shocks or temporary difficulties in bringing products to market. But it should act if there are signs that companies, households or workers start to expect high inflation to linger.
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