The International Monetary Fund (IMF) on Tuesday retained its growth forecasts for India at 7.5% in FY17 and FY18, but further trimmed projections for global economic growth for 2016 and the year after that due to some loss of growth momentum in the advanced economies and continuing headwinds for emerging countries, reports fe Bureau in New Delhi.
It has estimated India’s FY16 GDP growth at 7.3% before moving up to 7.5% in the next two fiscals, retaining the tag of the fastest-growing major economy. Sustaining strong growth over the medium term would require labour market reforms and dismantling of infrastructure bottlenecks, especially in the power sector, it said in its latest World Economic Outlook.
In India, monetary conditions remain consistent with achieving the inflation target of 5% in the first half of 2017, although an unfavourable monsoon and an expected public sector wage increase pose upside risks,” the fund noted.
In the new report, IMF has forecast global growth at 3.2% in 2016 and 3.5% in 2017, a downward revision of 0.2 percentage point and 0.1 percentage point, respectively. Cumulatively, since October 2015, IMF has lowered world GDP growth projection by 0.4 and 0.3 percentage point in 2016 and 2017, respectively. Growth in China was slightly stronger than previously forecast even as the IMF cut US growth by 0.2 percentage point for 2016 and by 0.1 percentage point in 2017. Cumulatively, since its forecast in October 2015, IMF has cut the US growth rate by 0.4 percentage point in 2016 and by 0.3 percentage point in 2017. Also, it pared the 2016 growth projection for the EU by 0.2 percentage point in the current year and by 0.1 percentage point in the next.
Growth in advanced economies was projected to remain flat at about 2%, in line with 2015 outcomes due to unfavourable demographic trends, low productivity growth, and legacies from the global financial crisis, the IMF said. Even developing economies could witness modest growth in 2016 and 2017 at 4.1% and 4.6%, respectively, compared with 4% in 2015. This reflected deep recessions in Brazil and Russia while growth weakened in West Asia due low oil prices. IMF revised downward Brazil’s growth further by 0.3 percentage point to -3.8% in 2016, the same as in 2015.
In the current environment of weak growth, IMF believes risks to the outlook were now more pronounced as “lower growth means less room for error”. It called for a three-pronged approach spanning structural, fiscal and monetary measures to revive growth.
Continued slowdown in world trade growth, partly due to growth rebalancing in China and also the sharp scaling down of investment in commodity exporters, could worry India. In its latest outlook, the IMF has cut its global trade growth forecasts by 0.3 percentage point each to 2.8% 2016 and 3.1% in 2017. Due to the combined effect of slower pace of growth in US as well as in other advanced economies, India’s merchandise exports have already contracted for a 15th straight month through February and any sharp rebound in India’s export prospects was unlikely anytime soon. The World Trade Organisation (WTO) too recently trimmed its 2016 global trade growth forecast by 1.1 percentage point, saying a slowdown in China and broad market volatility continued to weigh on growth. The multilateral trade body said global trade would rise 2.8% in 2016, lower than its previous forecast of a 3.9% expansion announced in September last year.
“The global recovery has weakened further amid increasing financial turbulence. Activity softened toward the end of 2015 in advanced economies, and stresses in several large emerging market economies showed no signs of abating,” IMF said in the outlook. Adding to these headwinds were concerns about the global impact of the unwinding of prior excesses in China’s economy as it transitions to a more balanced growth path after a decade of strong credit and investment growth, along with signs of distress in other large emerging markets, including from falling commodity prices. It also added that a sharper-than-projected growth slowdown in China and geopolitical conflicts could have significant spillovers on global economy.
“On the upside, the recent decline in oil prices may boost demand in oil-importing countries more strongly than currently envisaged, including through consumers’ possible perception that prices will remain lower for longer,” it noted.
The IMF report said raising growth was still a priority and could require more aggressive policy actions to lift demand and supply potential. It warned that policymakers also need to make contingency plans and design collective measures for a possible future in case downside risks materialise. Cooperation to enhance the global financial safety net and global regulatory regime was also central to a resilient international and financial system, it added.