India

IMF cuts India’s growth forecast to 6.1%

Washington: The IMF on Tuesday slashed India’s GDP growth projection for the year 2019 to 6.1 per cent, which is 1.2 per cent down from its April projections.

The International Monetary Fund (IMF) in April said India will grow at 7.3 per cent in 2019. However, three months later it projected a slower growth rate for India in 2019, a downward revision of 0.3 per cent.

As against India’s real growth rate of 6.8 per cent in 2018, the IMF in its latest World Economic Outlook projected India’s growth rate at 6.1 per cent in 2019 and noted that the Indian economy is expected to pick up the next year at 7.0 per cent in 2020.

On Sunday, the World Bank in its latest edition of the South Asia Economic Focus said India’s growth rate is projected to fall to 6 per cent in 2019 from 6.9 per cent of 2018.

The downward revision relative to the April 2019 WEO of 1.2 percentage points for 2019 and 0.5 percentage point for 2020 reflects a weaker-than-expected outlook for domestic demand, the IMF said.

“Growth will be supported by the lagged effects of monetary policy easing, a reduction in corporate income tax rates, recent measures to address corporate and environmental regulatory uncertainty, and government programs to support rural consumption, the IMF said.

China, whose GDP grew at 6.6 per cent in 2018, is now projected to grow at 6.1 per cent in 2019 and 5.8 per cent in 2020, it said.

“India’s economy decelerated further in the second quarter, held back by sector-specific weaknesses in the automobile sector and real estate as well as lingering uncertainty about the health of nonbank financial companies,” said the World Economic Outlook released ahead of the annual meeting of the IMF and the World Bank.

In India, growth softened in 2019 as corporate and environmental regulatory uncertainty, together with concerns about the health of the nonbank financial sector, weighed on demand, it said.

In its report, the IMF said that in India, monetary policy and broad-based structural reforms should be used to address cyclical weakness and strengthen confidence. A credible fiscal consolidation path is needed to bring down India’s elevated public debt over the medium term.

This should be supported by subsidy-spending rationalisation and tax-base enhancing measures. Governance of public sector banks and the efficiency of their credit allocation needs strengthening, and the public sector’s role in the financial system needs to be reduced, it said.

Reforms to hiring and dismissal regulations would help incentivize job creation and absorb the country’s large demographic dividend. Land reforms should also be enhanced to encourage and expedite infrastructure development, the IMF said.

The global economy is in a “synchronised slowdown” amidst growing trade barriers and heightened geopolitical tensions, the IMF warned on Tuesday as it downgraded the 2019 growth rate to three per cent, the slowest pace since the global financial crisis.

“This is a serious climbdown from 3.8 per cent in 2017, when the world was in a synchronised upswing,” Indian-American Gita Gopinath, chief economist of the International Monetary Fund (IMF) said in the foreword to the latest World Economic Outlook.

“With a synchronised slowdown and uncertain recovery, the global outlook remains precarious. At 3 per cent growth, there is no room for policy mistakes and an urgent need for policymakers to cooperatively deescalate trade and geopolitical tensions,” she said.

Besides supporting growth, such actions can also help catalyse needed cooperative solutions to improve the global trading system, Gopinath said.

Released ahead of the annual meeting of the IMF and World Bank, Gopinath in the World Economic Outlook said that this subdued growth is a consequence of rising trade barriers; and elevated uncertainty surrounding trade and geopolitics.

Idiosyncratic factors causing macroeconomic strain in several emerging market economies; and structural factors, such as low productivity growth and aging demographics in advanced economies are also responsible for this slow growth rate.

Global growth in 2020 is projected to improve modestly to 3.4 per cent, a downward revision of 0.2 per cent from its April projections, she said.

The growth projection for 2019 is the slowest pace since the global financial crisis in 2008.

However, unlike the synchronised slowdown, this recovery is not broad based and is precarious, she notes.

Growth for advanced economies is projected to slow to 1.7 per cent in 2019 and 2020, while emerging market and developing economies are projected to experience a growth pickup from 3.9 per cent in 2019 to 4.6 per cent in 2020.

About half of this is driven by recoveries or shallower recessions in stressed emerging markets, such as Turkey, Argentina, and Iran, and the rest by recoveries in countries where growth slowed significantly in 2019 relative to 2018, such as Brazil, Mexico, India, Russia, and Saudi Arabia, the IMF chief economist said.

A notable feature of the sluggish growth in 2019 is the sharp and geographically broad-based slowdown in manufacturing and global trade, Gopinath said.

“A few factors are driving this. Higher tariffs and prolonged uncertainty surrounding trade policy have dented investment and demand for capital goods, which are heavily traded,” she said.

The automobile industry is contracting owing also to idiosyncratic shocks, such as disruptions from new emission standards in the euro area and China that have had durable effects.

“Consequently, trade volume growth in the first half of 2019 is at 1 per cent, the weakest level since 2012, Gopinath said.

Gopinath warned that trade barriers and heightened geopolitical tensions, including Brexit-related risks, could further disrupt supply chains and hamper confidence, investment, and growth.

Such tensions, as well as other domestic policy uncertainties, could negatively affect the projected growth pickup in emerging market economies and the euro area.

“A realisation of these risks could lead to an abrupt shift in risk sentiment and expose financial vulnerabilities built up over years of low interest rates, she said adding that low inflation in advanced economies could become entrenched and constrain monetary policy space further into the future, limiting its effectiveness.

“The risks from climate change are playing out now and will dramatically escalate in the future, if not urgently addressed, she said.

(With inputs from PTI)

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