IMF anticipates ‘Negative Surprises’ in India

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Foreign Desk Report

DAVOS: The International Monetary Fund (IMF) on Monday lowered growth estimate for the world economy to 2.9% for 2019, citing “negative surprises” in few emerging market economies, especially India. Providing an update to the World Economic Outlook (WEO) ahead of the inauguration of the World Economic Forum (WEF) annual summit here, the fund also revised downwards its forecast for India to 4.8% for 2019. Global growth is projected to rise from an estimated 2.9% in 2019 to 3.3% in 2020 and 3.4% for 2021, a downward revision of 0.1 percentage point for 2019 and 2020 and 0.2 for 2021. The reduction is compared to projections made by the IMF in October last year. “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 IMF said. India-born IMF chief economist Gita Gopinath said growth in India slowed sharply owing to stress in the non-banking financial sector and weak rural income growth. 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 WEO), supported by monetary and fiscal stimulus as well as subdued oil prices, the IMF said. 2019 refers to the fiscal year 2019-20. Gopinath also said the pickup in global growth for 2020 remains highly uncertain as it relies on improved growth outcomes for stressed economies like Argentina, Iran and Turkey and for under performing emerging and developing economies such as Brazil, India and Mexico. India’s GDP growth in the July-September quarter of 2019 slowed sharply to 4.5%, the weakest pace in more than six years, as manufacturing output hit a slump and consumer demand as well as private investment weakened. On the positive side, the IMF on Monday said market sentiment has been boosted by tentative signs that manufacturing activity and global trade are bottoming out. Besides, there is a broad-based shift toward accommodative monetary policy, intermittent favourable news on US-China trade negotiations, and diminished fears of a no-deal Brexit, leading to some retreat from the risk-off environment that had set in at the time of the October WEO. The envisaged partial rollback of past tariffs and pause in additional tariff hikes as part of a ‘Phase One’ trade deal with the US is likely to alleviate near-term cyclical weakness, resulting in a 0.2 percentage point upgrade to the country’s 2020 growth forecast relative to the October WEO, the IMF said.