IMF trims global growth forecast for 2019 on India slowdown

The International Monetary Fund (IMF) on Monday lowered growth estimate for the world economy to 2.9 per cent for 2019, citing "negative surprises" in few emerging market economies, especially India.

Providing an update to the World Economic Outlook (WEO) ahead of the inauguration of the World Economic Forum (WEF) annual summit here, the fund also revised downwards its forecast for India to 4.8 per cent for 2019.

Global growth is projected to rise from an estimated 2.9 per cent in 2019 to 3.3 per cent in 2020 and 3.4 per cent for 2021, a downward revision of 0.1 percentage point for 2019 and 2020 and 0.2 for 2021. The reduction is compared to projections made by the IMF in October last year.

"The downward revision primarily reflects negative surprises to economic activity in a few emerging market economies, notably India, which led to a reassessment of growth prospects over the next two years. In a few cases, this reassessment also reflects the impact of increased social unrest," the IMF said.

India-born IMF Chief Economist Gita Gopinath said growth in India slowed sharply owing to stress in the non-banking financial sector and weak rural income growth.

India's growth is estimated at 4.8 per cent in 2019, projected to improve to 5.8 per cent in 2020 and 6.5 per cent in 2021 (1.2 and 0.9 percentage point lower than in the October WEO), supported by monetary and fiscal stimulus as well as subdued oil prices, the IMF said.

2019 refers to fiscal year 2019-20.

Gopinath also said the pickup in global growth for 2020 remains highly uncertain as it relies on improved growth outcomes for stressed economies like Argentina, Iran, and Turkey and for under performing emerging and developing economies such as Brazil, India, and Mexico.

India's GDP growth in the July-September quarter of 2019 slowed sharply to 4.5 per cent, the weakest pace in more than six years, as manufacturing output hit a slump and consumer demand as well as private investment weakened.

On the positive side, the IMF on Monday said market sentiment has been boosted by tentative signs that manufacturing activity and global trade are bottoming out. Besides, there is a broad-based shift toward accommodative monetary policy, intermittent favorable news on US-China trade negotiations, and diminished fears of a no-deal Brexit, leading to some retreat from the risk-off environment that had set in at the time of the October WEO.

"However, few signs of turning points are yet visible in global macroeconomic data," it noted.

Growth in China is projected to inch down from an estimated 6.1 per cent in 2019 to 6.0 per cent in 2020 and 5.8 per cent in 2021.

The envisaged partial rollback of past tariffs and pause in additional tariff hikes as part of a 'Phase One' trade deal with the US is likely to alleviate near-term cyclical weakness, resulting in a 0.2 percentage point upgrade to the country's 2020 growth forecast relative to the October WEO, the IMF said.

However, unresolved disputes on broader US-China economic relations and the needed strengthening of the domestic financial regulatory system are expected to weigh, it added.

IMF Managing Director Kristalina Georgieva said the reality is global growth remains sluggish even as she mentioned that monetary easing has helped to stabilise the global economy, adding roughly 0.5 per cent to global growth.

However, she said that a more comprehensive solution would be needed if global growth slows again. "A coordinated fiscal response can boost growth," she said while calling for a "spirit of cooperation".

Speaking at a press conference here on the WEO update, Gopinath said that a new international taxation regime is needed for digital economy to check tax evasion.

The world economy has been looking for some bright spots that can offset tighter financial market conditions and uncertainty at a time when trade tensions between the world's largest economies are affecting economic confidence and momentum.

Gian Maria Milesi Feretti, Deputy Director, Research Department IMF, was also present.