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IMF cuts India’s FY20 growth forecast to 4.8%

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The International Monetary Fund (IMF) on 20th Jan 2020, Monday revised downward India’s gross domestic product (GDP) growth projection to 4.8 percent for the financial year 2020 (FY20) and to 5.8 percent for FY21.

The global financial institution attributed the current slowdown in the country to stress in the non-bank financial sector and weak rural income growth.

However, the report stated that growth is expected to pick up to 6.5 percent in FY22, supported by the monetary and fiscal stimulus as well as subdued oil prices.

“(India’s) domestic demand has slowed more sharply than expected amid stress in the non-bank financial sector and a decline in credit growth,” the report said.

Global growth projection slashed

IMF also cut its global growth projection to 2.9 percent in 2019, 3.3 percent in 2020 and 3.4 percent for 2021 — a downward revision of 0.1 percentage point for 2019 and 2020 and 0.2 for 2021 compared to its October forecast.

“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,” IMF said in its report.

For emerging market and developing economies, IMF forecast a pickup in growth from 3.7 percent in 2019 to 4.4 percent in 2020 and 4.6 percent in 2021, a downward revision of 0.2 percent for all years compared to its earlier report.

IMF Chief Economist Gita Gopinath in her speech said: “The biggest contributor to the revision is India, where growth slowed sharply owing to stress in the non-bank financial sector and weak rural income growth.”

In advanced economies, growth is projected to slow slightly from 1.7 percent in 2019 to 1.6 percent in 2020 and 2021.

On the positive side, IMF said market sentiments have been boosted by tentative signs that manufacturing activity and global trade are bottoming out, as well as a broad-based shift toward accommodative monetary policy, intermittent favourable news on US-China trade negotiations, and diminished fears of a no-deal Brexit.

While there are signs of stabilization, IMF said in its latest WEO report, the global outlook remains sluggish and there are no clear signs of a turning point.

Gopinath said, “There is simply no room for complacency, and the world needs stronger multilateral cooperation and national-level policies to support a sustained recovery that benefits all.”

Policy space remains limited

The risks to the global economic growth remain on the downside, despite positive news on trade and diminishing concerns of a no-deal Brexit. IMF noted that new trade tensions could emerge between the United States and the European Union, and US-China trade tensions could return, posing a risk to global growth.

“Importantly, even if downside risks appear to be somewhat less salient than in 2019, policy space to respond to them is also more limited,” read the report.

However, it said that there were preliminary signs that decline in manufacturing and trade may be bottoming out. A durable US-China Phase-I deal is expected to reduce the cumulative negative impact of trade tensions on global GDP by end 2020 from 0.8 percent to 0.5 percent, the report 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 underperforming emerging and developing economies such as Brazil, India, and Mexico,” Gopinath said.

Since last year, India has witnessed a series of downgrades to its growth forecast amid weak economic activity.

The Central Statistics Office in its advanced estimates earlier in January had put GDP growth at 5 percent (at 2011-12 prices) and 7.5 percent at current prices for FY20.In its last monetary policy, the Reserve Bank of India had also lowered its FY20 growth projection to 5 percent, citing weakening demand and a slowdown in global economic activity.

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This news is not edited by SightsIn Plus, except the title. Its auto-feed directly from www.cnbc.com

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