India’s growth forecast slashed to 4.8% by IMF

Country’s current fiscal growth pared to 4.8% The downward revision primarily reflects negative surprises to economic activity in a few emerging market economies, notably India — Gita Gopinath Chief economist, IMF

Davos, Jan. 20: The IMF on Monday lowered India’s economic growth estimate for the current fiscal to 4.8 per cent and listed the country’s much lower-than-expected GDP numbers as the single biggest drag on its global growth forecast for two years.

In October, the International Monetary Fund (IMF) had pegged India economic growth at 6.1 per cent for 2019.

Listing decline in rural demand growth and an overall credit sluggishness for lowering of India forecasts, IMF chief economist Gita Gopinath, however, said the growth momentum should improve next year due to factors like positive impact of corporate tax rate reduction.

“Global growth, estimated at 2.9 per cent in 2019, is projected to increase to 3.3 per cent in 2020 and inch up further to 3.4 per cent in 2021,” the IMF said while releasing an update to its World Economic Outlook.

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 IMF said ahead of the start of the World Economic Forum annual summit.

India-born IMF chief economist Gopinath said growth in India slowed sharply owing to stress in the non-bank financial sector and weak rural income growth.

The International Monetary Fund (IMF) on Monday lowered growth estimate for the world economy to 2.9 per cent 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 per cent for 2019.

Global growth is projected to rise from an estimated 2.9 per cent in 2019 to 3.3 per cent in 2020 and 3.4 per cent 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 per cent in 2019, projected to improve to 5.8 per cent in 2020 and 6.5 per cent 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.

For IMF, 2019 refers to fiscal year 2019-20.

Gopinath also said the pick-up 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 per cent, 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 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 USChina 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.

"However, few signs of turning points are yet visible in global macroeconomic data," it noted.

Growth in China is projected to inch down from 6.1 per cent in 2019 to 6.0 per cent in 2020 and 5.8 per cent in 2021.