IMF cuts India’s growth forecast the most, to 4.8%


NEW DELHI: The International Monetary Fund (IMF) on Monday slashed India’s GDP growth estimate to 4.8% for 2019-20 citing slowing domestic demand, stress in the non-banking financial sector and a decline in credit growth and also blamed the country’s slowdown for the downward revision in global and emerging economies growth.

The IMF said India’s growth is estimated at 4.8% in 2019, projected to improve to 5.8% in 2020 and 6.5% in 2021 (1.2 and 0.9 percentage point lower than in the October World Economic Outlook), supported by monetary and fiscal stimulus as well as subdued oil prices.

This is a sharp reduction from the 6.1% estimated in October and below the 5% estimated by the Reserve Bank of India and India’s National Statistical Office (NSO). Policy makers have blamed global slowdown for the sharp moderation in growth and the IMF’s prognosis is likely to trigger a fresh war of words between the government and critics who have slammed the Centre’s handling of the economy.

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India may lose fastest growing major eco tag for next two years, says IMF

India’s slowdown was also cited as the reason for the downward revision in emerging market growth projections. It was also the sharpest markdown among the emerging economies.

“For emerging market and developing economies, we forecast a pickup in growth from 3.7% in 2019 to 4.4% in 2020 and 4.6% in 2021, a downward revision of 0.2% for all years,” said IMF chief economist Gita Gopinath.


“The biggest contributor to the revision is India, where growth slowed sharply owing to stress in the nonbank financial sector and weak rural income growth. China’s growth has been revised upward by 0.2% to 6% for 2020, reflecting the trade deal with the United States,” said Gopinath while releasing the World Economic Outlook in Davos.

India also looks set to lose the fastest growing major economy tag for the next two years and is expected to overtake China when growth recovers to 6.5% in 2021-22, according to the IMF projection.

The IMF said that global growth, estimated at 2.9% in 2019, is projected to increase to 3.3% in 2020 and inch up further to 3.4% in 2021. “Compared to the October WEO forecast, the estimate for 2019 and the projection for 2020 represent 0.1 percentage point reductions for each year while that for 2021 is 0.2 percentage point lower. A more subdued growth forecast for India accounts for the lion’s share of the downward revisions,” the multilateral agency said.

The IMF also said the downward revision primarily reflects negative surprises to economic activity in a few emerging market economies, notably India, which led to a reassessment of growth prospects over the next two years. In a few cases, this reassessment also reflects the impact of increased social unrest, the multilateral agency said but did not elaborate.

The latest estimates come ahead of the Union Budget which is being keenly awaited for measures to boost growth which is forecast at its slowest pace in 11 years.

The government has unveiled a series of steps to boost economic growth but experts say more measures are need to prop up growth in the economy which has witnessed a sharp demand and investment slowdown.

The IMF said that the balance of risks to the global outlook remains on the downside, but is less skewed toward adverse outcomes than in the October outlook.

“The early signs of stabilisation discussed above could persist, leading to favourable dynamics between still-resilient consumer spending and improved business spending. Additional support could come from fading idiosyncratic drags in key emerging markets coupled with the effects of monetary easing and improved sentiment following the “Phase One” US-China trade deal, with the associated partial rollback of previously implemented tariffs and a truce on new tariffs. A confluence of these factors could lead to a stronger recovery than currently projected,” it said.

But it said downside risks remain prominent.

“Rising geopolitical tensions, notably between the United States and Iran, could disrupt global oil supply, hurt sentiment, and weaken already tentative business investment,” the IMF said.

“Moreover, intensifying social unrest across many countries — reflecting, in some cases, the erosion of trust in established institutions and lack of representation in governance structures — could disrupt activity, complicate reform efforts and weaken sentiment, dragging growth lower than projected. Where these pressures compound ongoing deep slowdowns, for example among stressed and underperforming emerging market economies, the anticipated pickup in global growth — driven almost entirely by the projected improvement (in some cases, shallower contractions) for these economies — would fail to materialise,” the IMF report said.

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