The International Monetary Fund sees the global economy slowing further in 2012 before gathering steam in 2013.
In its latest World Economic Outlook projections, the IMF seems to have underlined that no country will be able to emerge unscathed from the continuing global turmoil, slashing its earlier estimates made in April.
India, in particular, will see the biggest impact in growth on account of the slowdown, according to IMF data.
The IMF has cut its 2012 growth estimate for the Indian economy by 0.7 percentage points to 6.1 per cent, the sharpest revision for any of the countries included in the report. This translates into 10.3 per cent reduction in the growth estimate.
In 2010, the Indian economy grew by 10.8 per cent, according to the IMF data. In 2011, this slowed to 7.1 per cent.
What is more, the IMF believes that the impact of the uncertain conditions will be felt in 2013 as well: it has cut its 2013 growth estimate for India by 0.7 percentage points to 6.5 per cent. This amounts to a 9.7 per cent reduction of the growth estimate. With respect to the fourth quarter, the IMF believes the Indian economy will grow by 6.4 per cent in both 2012 and 2013, a slight improvement from 6.2 per cent in Q4, 2011.
Global outlook
Overall, the IMF has projected that the world economy will expand by 3.5 per cent in 2012 in its latest WEO report. This is a 0.1 percentage point downward revision from its earlier estimate. This translates into a 2.8 per cent downward revision of the projection. It has also slashed its 2013 growth estimate by 0.2 percentage points to 3.9 per cent.
Fourth quarter growth is pegged at 3.7 per cent in 2012 and 4.1 per cent in 2013.
Besides India, other emerging market economies, such as Brazil and China, have also seen their growth projections slashed. The reasons for the downgrade include a weak external environment, coupled with a decline in domestic demand.
Furthermore, increasing risk aversion and perceived growth uncertainty have resulted in plunging equity prices and capital outflows, resulting in currency depreciation.
The IMF has projected that growth in emerging and developing economies would moderate to 5.6 per cent in 2012 – down 0.1 percentage point from its earlier projection – slashing the earlier estimate by 1.8 per cent. It expects growth to be 5.9 per cent in 2013.
Bleak Euro Zone
The outlook for the Euro area also looks bleak: even though the IMF has maintained its growth estimate for 2012, the bloc’s economy is expected to contract by 0.3 per cent in 2012.
But the IMF has revised its projection for 2013 downward by 0.2 percentage points to 0.7 per cent, indicating that the worst may be yet to come.
The US is also likely to continue to face headwinds from the global crisis, with the IMF reducing its 2012 growth forecast for the world’s largest economy by 0.1 percentage points in both 2012 and 2013 to two per cent and 2.3 per cent, respectively.