India set to become world’s fastest-growing large economy – IMF

INDIA will overtake China this year to become the fastestgrowing large economy in the world, the head of the International Monetary Fund said yesterday.

Christine Lagarde described India as the bright spot in a cloudy global horizon, as she said its young population and progress on structural reforms would help the economy to fly in the coming years.

Last week, the IMF said changes this year to the way Indian growth was calculated meant the country was on course to grow by 7.2% this year and 7.5% next year.

Lagarde said Indian gross domestic product would be larger than Japan and Germany combined by the end of the decade under a measure that takes into account buying power in each country – known as purchasing power parity.

“By 2019, the economy will more than double in size compared with 2009,” she said. When adjusting for differences in purchase prices between economies, India’s GDP will exceed that of Japan and Germany combined.

“Indian output will also exceed the combined output of the three next largest emerging market economies – Russia, Brazil and Indonesia.

So India’s weight among the emerging markets will in- crease.” Lagarde said India was on course to overtake China by 2030 as the world’s most populous country, with the largest labour force.

By contrast, the Chinese government expects the country to grow by about 7% this year as policymakers move on structural reforms.

The IMF believes China will grow by 6.8% this year and 6.3% next year.

Lagarde also singled out the UK and the US as two advanced economies where the recovery was most promising. “Apart from the [US and UK] where a promising recovery continues, growth remains rather low in the euro area and Japan.”

While there were some reas- suring pick-up signs in these economies, there was a risk that the single currency area and Japan could remain stuck in a low growth, low inflation trap, with diverging monetary policies triggering increased volatility elsewhere.

She said a stronger dollar would also cause turbulence in emerging markets. “Emerging and developing economies could face a triple hit of a stronger US dollar, higher global interest rates, and more volatile capital flows.

“A stronger dollar will have an impact on emerging markets because many banks and companies have increased their borrowing in dollars in the past five years.”