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Ginger Lawrence | 06 April, 2021, 22:38

The IMF on Tuesday projected an impressive 12.5 per cent growth rate for India in 2021, stronger than that of China, the only major economy to have a positive growth rate past year during the COVID-19 pandemic. For FY 2020-21, the International Monetary Fund estimates the GDP to contract by 8 per cent.

"Global growth is expected to moderate to 3.3 per cent over the medium term - reflecting projected damage to supply potential and forces that predate the pandemic, including ageing-related slower labour force growth in advanced economies and some emerging market economies", the report mentioned. Should that happen, India would become the most rapidly expanding large economy in the world; the closest competitor, China, is projected to grow by 5.6 per cent.

It said the United Kingdom economy expanded by 1.3% in the final three months of a year ago, up from an initial estimate of 1% growth.

The upward revision, Gopinath said, reflects improved external environment, with stronger global growth and US COVID-19 relief package, which have increased the demand for China's products.

"Higher debt service costs are also expected to constrain their ability to address social needs, including rising poverty and growing inequality, or to correct the setback in human capital accumulation during the crisis", it said.

"Thanks to unprecedented policy response, the COVID-19 recession is likely to leave smaller scars than the 2008 global financial crisis", the International Monetary Fund said. Even for the next fiscal, it has revised the projection upwards.

In a release, IMF Economic Counsellor and Research Department Director Gita Gopinath said a multi-speed global economic recovery could give rise to unexpected circumstances, which could put the recovery at risk. For many frontier market economies, market access remains impaired, it said.

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Emerging and developing Asia, which includes China and India, is expected to record faster economic growth than other regions in both 2021 (8.6%) and 2022 (6.0%). In 2020, the inflation rate was 0.3% as forecast in October, while in 2022 consumer prices are expected to pick up to 1.2%.

The Fund's report further highlighted that the positive trend in the current account would continue and predicted that the current account balance would remain at 1.5 percent of the GDP.

"You would see global growth this year, lower by about one and a half percentage points". But according to Gopinath, the improved global outlook is mainly thanks to upgrades for advanced economies.

IMF Chief Economist Gita Gopinath said that the fund has been calling for worldwide cooperation on tax policy "for a long time", adding that different corporate tax rates around the world have fueled tax shifting and avoidance.

On the other hand, an extended period of the unprecedented financial support measures, that the countries have taken globally in order to contain the pandemic repercussions, may lead to overly stretched valuations and fuel financial vulnerabilities that could put global growth at risk and hinder its recovery.

The average annual loss in per capita GDP over 2020-24, relative to pre-pandemic forecasts, is projected to be 5.7% in low-income countries and 4.7% in emerging markets, while in advanced economies the losses are expected to be smaller at 2.3%. "Close to 95 million more people are estimated to have fallen below the threshold of extreme poverty in 2020 compared with pre-pandemic projections".