The International Monetary Fund (IMF) on Tuesday lowered the growth estimate for India by 30 basis points (100 basis points means 1 percentage point) for the current as well as the next financial year.

“India’s economy is set to grow at 7 per cent in 2019, picking up to 7.2 per cent in 2020. The downward revision of 0.3 percentage point for both years reflects a weaker-than-expected outlook for domestic demand,” the multilateral agency said in its update on “World Economic Outlook” (WEO). The revision is relative to the April WEO.

However, the good news is despite the revision, India’s growth rate will still be the fastest in the world followed by China. The WEO update says that in China, the negative effects of escalating tariffs and weakening external demand have added pressure to an economy already in the midst of a structural slowdown.

With policy stimulus expected to support activity in the face of the adverse external shock, China’s growth is forecast at 6.2 per cent in 2019 and 6.0 per cent in 2020, which is 10 basis points lower each year relative to the April projection.

Subdued global growth

Overall, as the update says, global growth remains subdued. Since the April report, the US further increased tariffs on certain Chinese imports and China retaliated by raising tariffs on a subset of US imports.

Global growth is forecast at 3.2 per cent in 2019, picking up to 3.5 per cent in 2020 (0.1 percentage point lower than in the April WEO projections for both years). GDP releases so far this year, together with generally softening inflation, point to weaker-than anticipated global activity.

The IMF’s India estimate is in line with the projections of various other agencies whose estimates range between 6.6 and 7.5 per cent. Fitch has the lowest projection while the World Bank has the highest. IMF is following Fitch, ADB and the RBI in cutting its earlier projection and all of these lower productions have one thing in common — both investment and consumption demand is low.

On the positive side, political stability, high capacity utilisation, uptick in business expectations in the second quarter, buoyant stock market conditions and higher financial flows to the commercial sector augur well for investment activity.

The IMF’s India estimate is in line with the projections of various other agencies whose estimates range between 6.6 and 7.5 per cent

 

Also read:IMF cuts India growth forecast for 2019-20 to 7.3 per cent

 

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