IMF cuts global growth estimate, retains India forecast

The global economy will grow at 3.2 per cent in 2016 and 3.5 per cent in 2017, the IMF forecast today in a downward revision of its previous estimates and sought an immediate and proactive response to the diminished outlook.

In its latest World Economic Outlook (WEO) report, the International Monetary Fund noted that the global recovery continues but at an ever slowing and increasingly fragile pace.

"Global growth continues, but at an increasingly disappointing pace that leaves the world economy more exposed to negative risks. Growth has been too slow for too long," Maurice Obstfeld, IMF Economic Counsellor, told reporters at a news conference here while releasing the latest WEO report.

"The new World Economic Outlook anticipates a slight acceleration in growth this year, from 3.1 to 3.2 per cent, followed by 3.5 per cent growth in 2017. Our projections, however, continue to be progressively less optimistic over time," Obstfeld said.

In January, the IMF forecast world output to grow at 3.4 per cent this year and 3.6 in 2017.

With its downside possibilities, the current diminished outlook calls for an immediate, proactive response, Obstfeld said.

"To repeat: there is no longer much room for error. But by clearly recognising the risks they jointly face and acting together to prepare for them, national policymakers can bolster confidence, support growth and guard more effectively against the risk of a derailed recovery," he said.

As this latest World Economic Outlook explains, a range of well-sequenced structural reforms can boost potential output, especially if accompanied by complementary fiscal support, Obstfeld said.

Pro-competitive product-market reforms in particular, such as those implemented with considerable success in Canada, the Netherlands and Spain two decades ago and in Italy in the 2000s, can be expansionary in the near term, he added.

Finally, further financial sector strengthening, as detailed in the Global Financial Stability Report, is essential to create a context in which monetary, fiscal, and structural policies can be more effective, Obstfeld said.

India a bright spot

Driven by private consumption and increased industrial activity, India's growth is projected to notch up to 7.5 per cent in 2016 17, overtaking China's GDP by more than 1 per cent, the IMF said on Tuesday.

Retaining its last October forecast, the International Monetary Fund in its latest World Economic Outlook report said, "With the revival of sentiment and pickup in industrial activity, a recovery of private investment is expected to further strengthen growth." 

"In India, growth is projected to notch up to 7.5 percent in 2016 17, as forecast in October. Growth will continue to be driven by private consumption, which has benefited from lower energy prices and higher real incomes," it said.

The World Economic Outlook report noted that in India, monetary conditions remain consistent with achieving the inflation target of 5 per cent in the first half of 2017, although an unfavourable monsoon and an expected public sector wage increase pose upside risks.

In India, lower commodity prices, a range of supply side measures, and a relatively tight monetary stance have resulted in a faster-than-expected fall in inflation, making room for nominal interest rate cuts, but upside risks to inflation could necessitate a tightening of monetary policy, it said.

"Fiscal consolidation should continue, underpinned by revenue reforms and further reductions in subsidies.

Sustaining strong growth over the medium term will require labour market reforms and dismantling of infrastructure bottlenecks, especially in the power sector," IMF said.

In 2015, India's growth was 7.3 per cent, which would increase to 7.5 per cent in the next two years of 2016 and 2017, the IMF said.

At the same time, the IMF report has projected a decline in China's growth rate from 6.9 per cent in 2015 to 6.5 per cent in 2016 and 6.2 per cent in 2017.

"China, now the world's largest economy on a purchasing- power-parity basis, is navigating a momentous but complex transition toward more sustainable growth based on consumption and services," it said.

"Ultimately, that process will benefit both China and the world. Given China's important role in global trade, however, bumps along the way could have substantial spillover effects, especially on emerging market and developing economies," the report said.

According to the report, the rebalancing process in China may be less smooth than assumed in the baseline scenario.

"A sharper slowdown in China than currently projected could have strong international spillovers through trade, commodity prices, and confidence, and lead to a more generalised slowdown in the global economy, especially if it further curtailed expectations of future income," it said.

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