Davos: The International Monetary Fund on Monday lowered its estimate on India''s 2019 economic growth to 4.8 per cent from the 6.1 per cent expansion it projected in October, citing a sharper-than-expected slowdown in local demand, stress in the non-bank financial sector and fall in credit growth. The IMF''s World Economic Outlook (WEO) Update revised India''s 2020 growth forecast to 5.8 per cent, down 0.9 percentage point from the previous estimate. For 2021, the estimate is 6.5 per cent. "The growth markdown largely reflects a downward revision to India''s projection, where domestic demand has slowed more sharply than expected amid stress in the nonbank financial sector and a decline in credit growth," said the IMF.
It said growth is estimated at 4.8 percent 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 also blamed India''s economic slowdown for the 0.1 percentage point cut in the global economic growth projections for last year to 2.9 per cent and to 3.3 per cent for the current year from those made in October. It also cut the global economic projections for 2021 by 0.2 per cent to 3.4 per cent. "The growth markdown largely reflects a downward revision to India''s projection, where domestic demand has slowed more sharply than expected amid stress in the nonbank financial sector and a decline in credit growth," said the IMF.
The reassessment of growth prospects over the next two years has been due to what the Fund said "negative surprises" to economic activity in a few emerging market economies, notably India. "In the third quarter of 2019, growth across emerging market economies (including India, Mexico, and South Africa) was weaker than expected at the time of the October WEO, largely due to country-specific shocks weighing on domestic demand," said the IMF in the Update released ahead of the World Economic Forum meeting here on Tuesday. Trade policy uncertainty, geopolitical tensions, and idiosyncratic stress in key emerging market economies continued to weigh on global economic activity-especially manufacturing and trade-in the second half of 2019.
Intensifying social unrest in several countries posed new challenges, as did weather-related disasters-from hurricanes in the Caribbean, to drought and bushfires in Australia, floods in eastern Africa, and drought in southern Africa. Despite these headwinds, the multilateral lender said, some indications emerged toward the year-end that global growth may be bottoming out. Moreover, monetary policy easing continued into the second half of 2019 in several economies. Adding to the substantial support the easing provided earlier in 2019, its lagged effects should help global activity recover in early 2020.
On the positive side, market sentiment has been boosted by tentative signs that manufacturing activity and global trade are bottoming out, 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 said. Downside risks remain prominent, including rising geopolitical tensions, notably between the United States and Iran, intensifying social unrest, further worsening of relations between the United States and its trading partners, and deepening economic frictions between other countries.
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