World Economic Outlook
In the backdrop of prevailing pandemic, the world GDP is likely to contract by about 6% in the calendar year 2020. While developed economies are likely to be more impacted on GDP front, the likely contraction for emerging/developing economies is going to be relatively lesser. When one take a look at empirical GDP growth data, it is noticed that developed economies were growing at much lower rate as compared to emerging/developing economies, which could be one of the reasons for likely higher GDP contraction for developed economies. In absolute terms, the GDP contraction is likely to be around US$ 5 trillion in the calendar year 2020. The black swan event has not only severely affected people's health, employment and economic activities but also triggered an economic recessionary trend across the globe. For economic revival, strong fiscal support is needed, which will have its consequences in the form of surging debt-GDP ratio. Public expenditure is to be judiciously targeted besides providing support to the vulnerable section of the society. Investments in healthcare, infrastructure, information technology, digitization, etc. would ensure sustainable economic recovery.
Let us examine likely GDP shrinkage across the globe in major economies of various geographies, in the calendar year 2020. These figures are based on the assumption that these countries will not have 2nd wave of infections during 2020. The largest economy, USA, of the world contracted by 32.9% in the June quarter wheres OECD has projected overall shrinkage of 8% in the calendar year 2020. In the recently concluded FOMC meeting, US inflation over longer run is targeted at average 2% level. It also point out to the challenges for US monetary policy posed by continuing low interest rate regime. Other North and South American countries Canada, Brazil, Argentina and Mexico are likely to register GDP contraction of 8%, 7.4%, 8.3% and 7.5% respectively. Euro area is likely to contract by 9.1% in the calendar year 2020 whereas major European countries namely, Germany, Russia, UK, France and Italy might see GDP shrinkage of 6.6%, 8%, 11.5%, 11.4% and 11.3% respectively. Australia and New Zealand GDP is projected to contract at 5% and 8.9% respectively. South African economy might witness a GDP contraction of 7.5% during 2020. As regards Asian majors - China, Japan, India, Indonesia and South Korea are likely to contract by 2.6%, 6%, 3.7%, 2.8% and 1.2% respectively, according to OECD report.
Indian Economic Outlook
Indian economy has been on downward spiral for last three years when GDP growth recorded was 7%, 6.1% and 4.2% for FY 2017-18, 2018-19 and 2019-20 respectively. June quarter GDP figures are going to be announced on Monday, 31st August, which are likely to contract by approximately 20%, according to economist estimates polled by Bloomberg. The 2nd half of the current financial year is likely to witness strong economic revival, and current financial year GDP contraction is likely to be contained to 3.1%.
While taking a look at vital economic parameters, Forex reserves continue to surge, indicating a strong FDI and FPI inflows, thereby reaching a comfortable level of USD 537 billion, occupying 5th position in the 500 billion US dollar elite club. The current account for fiscal 2020-21 is likely to end in surplus after a gap of 17 years though Exports continue to be range bound between USD 300 billion and 330 billion for last 8-9 years. Another economic parameter debt to GDP ratio is likely to reach 87.6% by the end of current fiscal - an increase of 15.4% from previous fiscal year. The interest rate cycle has almost bottomed out where we can see reversal in the trend. Retail inflation continues its upward journey for last 3 months when it recorded 5.91%, 6.23% and 6.93% for March, June and July 2020 respectively. Due to nationwide lock-down data collection was disrupted, preventing release of inflation numbers for April and May 20 months. Fiscal deficit had surged to 4.59% in FY19-20 as compared to 3.4% in the previous year. This years it is expected to cross 6% level due to higher fiscal spending on account of pandemic outbreak.
While uncertainty continue to prevail, a strong economic recovery is expected in the 2nd half of FY2020-21.
Please keep watching this space for latest updates on economic front!
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