Why in news?
The IMF (International Monetary Fund) unveiled its 2nd World Economic Outlook (WEO) for 2021.
What does the World Economic Outlook address?
- Analyzes key parts of the IMF's surveillance of economic developments and policies in its member countries.
- Projects developments in the global financial markets and economic systems.
- Highlights the risks and uncertainty that could threaten growth.
The IMF comes out with the WEO report twice every year - April and October.
What are the key takeaways from the recent WEO?
Economic recovery
- The global economic recovery momentum had weakened due to the pandemic-induced supply disruptions.
Inequality
- There is an increasing inequality among nations, with divergence in economic prospects across countries.
- Aggregate output for the advanced economy group is expected to regain its pre-pandemic trend path in 2022 and exceed it by 0.9% in 2024.
- But aggregate output for the emerging market and developing economy group (excluding China) is expected to remain 5.5% below the pre-pandemic forecast in 2024.
- This is likely to result in a larger setback to improvements in living standards in those economies.
- Reasons - Two key reasons for the economic divergences:
- large disparities in vaccine access
- differences in policy support
Employment
- Employment growth is likely to lag the output recovery.
- Employment around the world remains below its pre-pandemic levels, reflecting the following -
- negative output gaps
- worker fears of on-the-job infection in contact-intensive occupations
- childcare constraints
- labour demand changes as automation picks up in some sectors
- replacement income through furlough schemes or unemployment benefits helping to cushion income losses
- frictions in job searches and matching
Furloughs are temporary cessations of work characterized by employees retaining their jobs but not getting paid.
- Worryingly, the gap between recovery in output and employment is likely to be larger in emerging markets and developing economies than in advanced economies.
- Also, young and low-skilled workers are likely to be worse off than prime-age and high-skilled workers, respectively.
What does this mean for India?
- As far as GDP is concerned, India’s growth rate hasn’t been tweaked for the worse, and India’s economic recovery is gaining ground.
- However, the IMF projection that the recovery in unemployment is lagging the recovery in output (or GDP) is a concern for India.
- This could mean large population being excluded from the GDP growth and its benefits.
- Lack of adequate employment levels would affect overall demand and thus impede India’s growth momentum.
The total number of employed people in the Indian economy as of May-August 2021 was 394 million which is 11 million below the level set in May-August 2019.
Notably, India was already facing a deep employment crisis before Covid, and it became much worse after it.
Why could employment lag output growth in India?
- India already had a massive unemployment crisis.
- India is witnessing a K-shaped recovery - Different sectors are recovering at significantly different rates.
- This holds true for both between the organised sector and unorganised sector, and within the organised sector.
- Another reason is that the bulk of India’s employment is in the informal or unorganised sectors.
- So, a weak recovery for the informal/unorganised sectors implies a drag on the economy’s ability to create new jobs or revive old ones.
Informal worker - A worker with no written contract, paid leave, health benefits or social security. The share of informal/unorganised sector GVA is more than 50% at the all-India level, and is even higher in certain sectors.
The organised sector refers to firms that are registered and that which provide formal employment.
Source: The Indian Express
