India’s Gross Domestic Product (GDP) is expected to grow at 8.3 percent, as per World Bank’s June 2021 Global Economic Prospects report, which was released on June 8, 2021
The World Bank in its report on global economy recovery post-Covid-19 pandemic predicts the economic growth in South Asian countries to rebound to a stronger-than-expected 6.8 percent in 2021.
The apex bank also noted the surge of COVID-19 cases in South Asia, especially India and the slow pace of vaccination in several countries. It also stated that the economic recovery has done little to narrow the gap with pre-pandemic trends and the GDP in 2022 is expected to be 9 percent lower than projected prior to the pandemic.
World Bank’s forecast for South Asian Nations
• The World Bank has forecasted India’s GDP growth for FY 2021-22 to be 8.3 percent, supported by plans for higher spending on health, rural development, infrastructure and a stronger-than-expected recovery in services.
• The report noted that the better growth prospects have masked significant damage to economic activity from COVID-19 in India. However, the growth for FY 2022-23 is expected to slow to 7.5 percent.
• Bangladesh’s GDP has been forecasted to witness a growth of 3.6 percent in FY 2020-21 and 5.1 percent in FY 2021-22.
• As per World Bank, the recovery is expected to be gradual in Bangladesh as private consumption is supported by normalising activity, moderate inflation and rising garment exports.
• The bank’s report predicts Pakistan’s GDP to grow at 1.3 percent in FY 2020-21.
• In India, the report noted that the enormous second Covid-19 wave is undermining the rebound in services and manufacturing activity. It also stated that the high-frequency data, including a renewed drop in foot traffic around work and retail spaces, suggests that activity is again collapsing.
• It further noted that the economic recoveries in Bangladesh and Pakistan also face hurdles from the recent rise in Covid-19 cases and related restrictions.
• Sri Lanka, which is also facing a rise in Covid-19 cases and mounting government debt, has experienced significant exchange rate depreciation since the onset of the pandemic.
• Overall, the World Bank noted that fiscal and monetary policies remain accommodative in South Asia following an aggressive policy response in 2020, which included cuts in interest rates, increase in government expenditure, an extension of loans and guarantees and steps to ensure financial stability.
• The report further found that the pandemic is expected to leave a legacy of higher poverty in the region with tens of millions of people anticipated to fall below the USD 1.90-a-day extreme poverty line this year.
• Further deprivation is predicted to come from higher food prices as global agricultural commodities have risen 30 per cent over the past year.
Economic Outlook Highly Uncertain
The World Bank report noted that the economic outlook is highly uncertain, especially with the pandemic continuing to spread and recovery still in early stages. There are downside risks that stem from financial sector challenges, upward pressure on food prices, high government debt and the uncertain trajectory of Covid-19 and vaccination.
World Bank’s report on Global Economy
• The World Bank report has predicted the global economy to remain strong and expand at 5.6 per cent in 2021, the fastest post-recession pace in 80 years, relying on strong rebounds from a few major economies despite challenges posed by the COVID-19 pandemic.
• It noted that the global output will be about 2 percent below pre-pandemic projections by the end of this year.
• It also notes that the per capita income losses will not be unwound by 2022 for about two-thirds of emerging market and developing economies.
• Further, among low-income economies where vaccination is slow, the effects of the COVID-19 pandemic have reversed poverty reduction gains and aggravated insecurity and other long-standing challenges.
• World Bank Group President David Malpass said that “while there are welcome signs of global recovery, the pandemic continues to inflict poverty and inequality on people in developing countries around the world.”
• He further stressed the importance of globally coordinated efforts to accelerate vaccine distribution and debt relief, particularly for low-income countries. He also noted that the policymakers need to address the pandemic’s lasting effects and take steps to spur green, resilient and inclusive growth while safeguarding macroeconomic stability.
• The US growth is predicted to touch 6.8 percent this year, backed by large-scale fiscal support and easing of the pandemic restrictions.
• China’s economic growth is also anticipated to rebound to 8.5 percent this year, reflecting release of pent-up demand.
• The emerging market and developing economies are expected to expand 6 percent this year, supported by higher demand and elevated commodity prices.
• However, the recovery in many countries is still being held back by a rise in Covid-19 cases and slow vaccination progress along with the withdrawal of policy support in some instances. The rebound in these group of countries is expected to be a more modest 4.4 percent, while the same recovery is forecast to 4.7 percent in 2022.
• The per capita income in many emerging markets and developing economies is also expected to remain below pre-pandemic levels.
• The growth in low-income countries is predicted to be the slowest in the past 20 years except 2020. The low-income countries are forecasted to expand by 2.9 percent in 2021 before picking up to 4.7 percent in 2022.
• The trade costs remain almost one-half higher in these countries than in advanced economies, due to higher shipping and logistics costs.
• As per the World Bank report, the 2020 global recession brought about the smallest inflation decline and fastest subsequent inflation upturn of the last five global recessions.
• Though global inflation is likely to rise through the remainder of 2021, it is expected to remain within target ranges in most inflation-targeting countries.
• In low-income countries, rising food prices and accelerating inflation may lead to challenges associated with food insecurity.
• The World Bank has suggested the policymakers in these countries to ensure that rising inflation rates do not lead to a de-anchoring of inflation expectations and resist subsidies or price controls to avoid putting upward pressure on global food prices.