MEETING OF THE MINDS
IMF chief Christine Lagarde with Finance Minister Arun Jaitley at annual meetings of the International Monetary Fund (IMF) and the World Bank in Washington. The IMF chief has said the Indian economy was on a ‘very solid track’ in the mid-term, days after the Fund lowered its growth forecast for the current and the next year. Jaitley said the positive responses about the Indian economy by the world leaders had ‘increased the confidence of India’.
The IMF’s steering committee warned that global growth is at risk of faltering in coming years given uncomfortably low inflation and rising geopolitical risks, injecting a cautious note into an otherwise improving economic outlook.
“The recovery is not yet complete, with inflation below target in most advanced economies, and potential growth remains weak in many countries,” the International Monetary and Financial Committee said in a communique released Saturday in Washington. “Near-term risks are broadly balanced, but there is no room for complacency because medium-term economic risks are tilted to the downside and geopolitical tensions are rising.”
The panel didn’t specify which geopolitical risks it was most concerned about. In the past few weeks the US and North Korea have engaged in shrill rhetoric about Pyongyang’s nuclear weapons. And on Friday, US President Donald Trump took steps to confront Iran and renegotiate a 2015 multinational accord to curb Tehran’s nuclear program. At the same time, the UK is in the middle of negotiations on the terms of its exit from the EU.
The panel nonetheless described the global outlook as strengthening, with rising investment, industrial output and confidence - conditions that make it ripe for nations to “tackle key policy challenges” and enact policies that boost the speed limit of their economies.
“It’s when the sun is shining that you need to fix the roof,” IMF Managing Director Christine Lagarde said at a press briefing to discuss the statement.
The IMF panel released the statement during the annual meetings of the IMF and World Bank. The IMFC is the IMF’s top advisory panel, and is composed of 24 ministers and central bankers from nations including the US, China, Germany, Japan and France.
The panel also reiterated previous stances on currencies, such as saying that “we will refrain from competitive devaluations, and will not target our exchange rates for competitive purposes.” In addition, “flexible exchange rates, where feasible, can serve as a shock absorber,” the IMFC said.
The IMFC repeated that it’s “working to strengthen” the contribution of trade to economies, echoing its April statement as well as one made by Group of 20 leaders in Germany in July. Those reflect efforts to accommodate the positions of the administration on trade; a year ago, the IMFC called in its missive to “resist all forms of protectionism.”
Asked about ongoing negotiations to overhaul the North American Free Trade Agreement, Lagarde said trade is a “very powerful engine” for growth, innovation and productivity. It’s also legitimate to take a look at revising such longstanding agreements, and hopefully it can result in a “win win,” she said.
IMF Managing Director Christine Lagarde has said the Indian economy is on a “very solid track” in the mid-term, days after the International Monetary Fund lowered its growth forecast for the current and the next year. Describing the two major recent reforms in India — demonetisation and goods and services tax (GST) — as a monumental effort, Lagarde said it is hardly surprising that there “is a little bit of a shortterm slowdown” as a result.
The IMF last week lowered India’s growth projection to 6.7 per cent in 2017, 0.5 percentage points less than its previous two forecasts in April and July, attributing it to demonetisation and introduction of the GST.
It also lowered the country’s growth for 2018 to 7.4 per cent, 0.3 percentage points less than its previous two projections in July and April.
India’s growth rate in 2016 was 7.1 per cent, which saw an upward revision of 0.3 percentage points from its April report.
“Turning to India...we have slightly downgraded India; but we believe that India is for the medium and long-term on a growth track that is much more solid as a result of the structural reforms that have been conducted in India in the last couple of years,” Lagarde said.
“But for the medium term, we see a very solid track ahead for the Indian economy,” she said to a question on India.
“We very much hope that the combination of fiscal, because the deficit has been reduced, inflation has been down significantly, and the structural reforms will actually deliver the jobs that the Indian population, particularly the young Indian people expect in the future,” Lagarde said.