The World Economic Outlook Report published by the International Monetary Fund (IMF) on April 14, called the Coronavirus pandemic a ‘crisis like no other’. It said that a recession is looming over the world as the global economy is projected to contract sharply by 3% in 2020. Complete Coverage: Coronavirus
Crux of the Matter
IMF assumes that the pandemic would fade in the second half of 2020 and as economic activities resume it projects a 5.8% growth in the global economy in 2021. The statistics predicted by the IMF are much worse than the 2008-09 financial crisis.
Since equity markets have gone down dramatically; high-yield corporate and emerging market sovereign spreads have widened significantly and portfolio flows to emerging market funds have reversed. The IMF plans to deal with this crisis in 2 phases: firstly a phase of containment and stabilization followed by the recovery phase. Growth in the advanced economy group is being projected at –6.1% in 2020. Other regions like Latin America (–5.2%); Russia (–5.5%), the Middle East and Central Asia (–2.8%) are also expected to slow down severely and witness negative growth rates.
Elephant and Dragon Lead the Hope Non-oil GDP would contract by 4%, and most economies like Saudi Arabia and Iran are also expected to contract. India and China are only nations that may see a positive growth rate in 2020 at 1%, which is ~5% below the previous decade’s average.
In China, even with a sharp rebound at the end of 2020 and sizeable fiscal support, the economy is projected to grow at only 1.2 % in 2020. India in the same region which was expected to grow at 5.8% in January 2020 is now predicted to grow positively with 1.9% growth rate. Both India and China are expected to recover sharply with 7.4% and 9.2% growth rate in 2021 respectively.
The GDP numbers being projected by the World Bank and IMF for India are far “too optimistic” and the country would require additional expenditure of ₹10 lakh crore to bring the coronavirus-hit economy back on track. Arvind Subramanian, Former Chief Economic Adviser
Even before the pandemic hit India, the economy was slow and was already fighting a major unemployment crisis. According to Centre for Monitoring of Indian Economy, the unemployment level has reached 23% in the recent weeks and now with the extended lockdown and increased economic disruption the economic losses are estimated at $234.4 billion which is 8.1% of the GDP.
With the fluidity of the situation thwarting precise forecasts, ICRA currently projects Indian GDP to contract by a range of 10-15 percent in Q1 FY21, which would translate to a bleak full-year growth band of +/-1 percent in FY21. Aditi Nayar, Principal Economist, ICRA.
Is it Recession Yet? From mid-January to end-March, base metal prices fell about 15%, natural gas prices declined by 38%, and crude oil prices dropped by about 65%. Futures markets indicate that oil prices will remain below $45 a barrel through 2023, approximately 25% lower than the 2019 average price, reflecting persistently weak demand. Following the dramatic decline in oil prices, the growth rate for oil-exporting countries is projected to drop to –4.4% in 2020. They are going to be severely hit whereas due to the recent OPEC+ agreement and reduced oil prices, oil-importing countries will be at a benefit.
Commodity Prices
The rapidly worsening risk sentiment has prompted a series of central bank rate cuts, liquidity support actions, and, in a number of cases, large asset purchase programs from all countries. An overall analysis of the IMF report suggests that financial conditions are serious in advanced as well as emerging market economies and this is the biggest crisis and recession of the century.
For the first time since the #GreatDepression both advanced economies and emerging market and developing economies are in recession” said @GitaGopinah at the release of the latest World Economic Outlook #WEO https://t.co/93xXDRsg3B pic.twitter.com/3PmqaVCboH — IMF (@IMFNews) April 14, 2020
Curiopedia
A recession had been typically recognized as two consecutive quarters of economic decline, as reflected by GDP. However, the National Bureau of Economic Research (NBER), which officially declares recessions, says the two consecutive quarters of decline in real GDP are not how it is defined anymore.
The Panic of 1785 is one of the earliest recessions to be dated ever. This recession lasted for almost 4 years, during which the business boom post-American Revolution vanished. The recession was immediately followed by the recession of ‘Cooper Panic of 1789’.
2008’s recession was termed as the “Great Recession” while economists and many media houses have started referring to this (2020) recession as the “Great Lockdown”. While the 1930’s recession is called the “Great Depression”.
Below is the entrance of the RBI office in Delhi. The entrance is guarded by 2 Statues of a Yaksha and Yakshani each. These are mythological creatures who serve ‘Kubera – God of Wealth’. Although some people raised concerns regarding showcasing the Yakshani half-naked.
Curated Coverage
Live Mint – India GDP projections by World Bank, IMF too optimistic: Arvind Subramanian
IMF – The Great Lockdown: Worst Economic Downturn Since the Great Depression
The Times – IMF predicts deep recession but says economies will bounce back
Politico – Why This Recession Will Be Different (and How to Keep It Mild)
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