PremiumThe International Monetary Fund (IMF) latest update on its world economic outlook highlights the precarious state of emerging market economies. There is a marked difference between countries within the emerging market group in both the impact of the second wave and the response towards mitigating them.
The IMF now expects emerging market and developing economies to show a mere 3.9% growth in the current year, 0.4 percentage points lower than what it forecast in April. Within this cohort, emerging and developing Asia would be hit harder with growth now expected 1.1 percentage points lower than what was estimated earlier. India’s growth has been pared by three percentage points to 9.5%.
What is clear is that the impact of the second wave has varied across countries and is more severe in emerging economies. This is an outcome of not only the level of healthcare available but largely due to the difference paces of vaccinations among countries. The IMF points out that in advanced economies, nearly 40% of the population have been vaccinated. Wider vaccine coverage gives comfort to open up more parts of the economy, including contact intensive services faster. This has eluded emerging market economies.
Going forward, the path to recovery is likely to be difficult for emerging economies, the IMF warns. One, the pace of vaccination is yet to pick up. Therefore, economic recovery has stalled or slowed which has meant that prospects of employment and income remain subdued.
Where does India stand?
Weakened by the first wave, the pandemic has pushed back India’s economic recovery during the second wave. To be sure, IMF is just catching up with the rest of the private forecasters and its 9.5% forecast is similar to that of the Reserve Bank of India's (RBI). In fact, the multilateral agency could be seen as more optimistic when compared with some of the private forecasters. State Bank of India (SBI), the country’s largest lender, expects growth to be just 7.8%. The upshot is that the second wave has delivered a blow to an already weakened economy. Analysts believe that for a quick revival beyond optical relief, the pace of vaccinations needs to increase. Faster inoculation is a key to opening up services. Those at HSBC point out that services would be the next leg of recovery given that large swathes of the sector are still severely restricted.
Meanwhile, the central bank may continue to support through an accommodative monetary policy.
