IMF cuts India's growth projection, but it still retains world's top spot

The International Monetary Fund (IMF) cut India's growth projections for this fiscal year to 7.3 per cent and for the next to 7.5 per cent on Monday, although the country will still retain its top spot in the global growth league.

But "India's growth remains quite robust into the future; it is down but growing very strongly", said Maury Obstfeld, the director of the IMF's Research Department.

The World Economic Outlook (WEO) Update reduced by 0.1 per cent the projections made in April for this year and by 0.3 per cent for 2019.

At the news conference to release the report in Washington, Obstfeld explained the downgrade by saying that while the main factor is the rise in oil prices, "the general tightening in general global financial conditions is (also) playing a role in affecting India's growth".

Gian Maria Milesi-Ferreti, the deputy director of the Research Department, added that another element that went into the downgrade was "the rising inflationary pressures".

"Monetary policy has tightened; it's a bit tighter than under our forecast in April and that adds to oil and tighter global financial conditions in taking a little bit off growth for next year," he said.

Obstfeld said that although some factors have negatively impacted the global growth since April, they were not significant enough to reduce the projection.

"We continue to project global growth rates of just about 3.9 per cent for both this year and next, but judge that the risk of worse outcomes has increased, even for the near term," he said.

The report said that for such a scenario the "possible triggers include rising trade tensions and conflicts, geopolitical concerns, and mounting political uncertainty".

Citing the tariff increases by the US and retaliation by other countries, it said they "could derail the recovery and depress medium-term growth prospects".

The Update kept the growth projections for China unchanged at 6.6 per cent for this year and 6.4 for 2019, and for the US at 2.9 per cent for 2018 and 2.7 per cent next year.

But for the Euro zone, it cut the growth projections by 0.2 per cent to 2.2 per cent for this year and by 0.1 per cent to 1.9 per cent for next year.

Obstfeld said: "The dollar has already appreciated broadly since April, and financial conditions facing emerging and frontier economies have become somewhat more restrictive."

The Update said the dollar has appreciated by 5 per cent since February.

As for reducing the projections for India, it said they reflect the "negative effects of higher oil prices on domestic demand and faster than-anticipated monetary policy tightening due to higher expected inflation."

The latest projections are still markedly higher than the growth rate of 6.7 per cent in 2017 and the report said it was because "drags from the currency exchange initiative and the introduction of the goods and services tax fade".

The IMF Update is in line with the World Bank's Global Economics Prospects projections issued last month.

However, the IMF numbers are lower than the United Nations growth estimate of 7.5 per cent for this year and 7.6 per cent for the next year made in May in the World Economic Situation and Prospects.

(Arul Louis can be reached at arul.l@ians.in)

--IANS

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