It was expected that the Omicron version of COVID may prove to be nothing more than a pin-prick for economic activities. The latest gross domestic product (GDP) growth forecasts by the International Monetary Fund (IMF), however, suggest that its impact may not be so weak. In the January release of its World Economic Outlook (WEO) published on Tuesday, the IMF lowered its growth forecast for the global economy to 4.4% in 2022 from 4.9% projected by its previous update last October. This is a huge drop in just a few months. For India too, its GDP forecast has been cut by 50 basis points to 9% from 9.5% three months ago, though that is for the fiscal year 2021-22. The IMF’s latest projection falls short of the government’s advance estimate of 9.2% earlier this month and our central bank’s forecast of 9.5%, an earlier calculation that it has stuck to in its December policy review. Since Omicron cases have only increased in the last few fortnights, it seems that our data crunchers may not have adequately assessed the full impact of this variant and their numbers may need to be reduced. However, for 2022-23, the IMF’s WEO has increased our expected growth from 8.5% to 9%.
As the fund sees, while both the US and China are likely to lose momentum in calendar 2022, India may be able to move on. This could make India the fastest growing major economy in the world by a wide margin. As China sees a slowdown in its real estate sector and its zero-Covid policy compresses commerce in an uphill battle against Omicron, its growth forecast for 2022 was cut to 4.8% from 5.6%. The US could face not only supply-chain disruptions and rising capital costs as high inflation calls for monetary policy action, but also a political cloud over a major fiscal package. The 2022 forecast for the US economy was revised to 4% from 5.2% estimated in WEO’s October update. Clearly, Omicron has erupted at particularly bad times for the world’s two largest national economies. Both are set to drag down global growth. The eurozone, which has its own set of COVID concerns, is also expected to be worse this calendar year than ever before. In such a situation, if India’s rapid development stops, then it will be a matter of satisfaction. However, our leaders shouldn’t make a big deal about it before we have clear indications that the 9% clip will be achieved in this fiscal year and persist into 2022-23, the budget for which will be unveiled next week. Have to go
We must remember that the growth in 2021-22 only represents the recovery of production lost in 2020-21 after the pandemic. While our overall resilience has been remarkable, our revival remains uneven. Furthermore, the real test of economic expansion lies ahead. High-frequency scanners of activity showed a slight decline in the form of the third wave of Covid. Omicron’s impact is not yet fully revealed, as the ongoing wave, while lighter than last year, has subsided. We have imposed mild restrictions this time around, but the virus has dug its claws hard enough to disrupt parts of the economy, with travel and tourism being a prime example. We also cannot avoid adverse changes in global conditions. An increased oil-import bill looks like a distinct possibility, and more so, a reversal of easy money by the US, which could lead to capital outflows and weaken the rupee. Our forex reserves provide a cushion, but there may still be trade-offs that we haven’t had to struggle with in recent years. All that said, we should not take rapid growth lightly.
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