IMF Cuts India’s Growth Forecast For 2019-20 To 7%

By Moderator July 24, 2019 12:38

The International Monetary Fund (IMF) has cut India’s growth forecast for 2019-20 to 7% from its forecast in April of 7.3% on poor demand conditions

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  • The IMF’s World Economic Outlook July update also cut India’s growth forecast in 2020-21 to 7.2% from the previous estimate of 7.5%.
  • This latest cut in the forecast follows a series of cuts by the IMF in its previous updates.
    • In April, the IMF had cut India’s growth forecast for 2019-20 to 7.3%, which was 0.2 percentage points lower than the forecast made in January, which itself was 0.1 percentage points lower than the forecast made in October 2018.
    • The forecast of 7.2% growth for 2020-21 is 0.5 percentage points lower than what was forecast made in October and January.
  • IMF did not give details of muted domestic demand, but various sectors of the economy have been witnessing a slowdown, particularly auto.
    • For instance, retail vehicle sales across the country fell by 5.4 percent in June year-on-year to 1.64 million units, according to data by the industry body – the Federation of Automobile Dealers Associations (FADA).

Compare to China

  • Even then, India will continue to be the fastest-growing large economy in the world.
    • The closest competitor, in terms of growth – China was projected to grow by 6.2 percent in 2019 and 6 percent in 2020 by IMF.
    • Projections for both the years were cut by 0.1 percentage points from earlier estimates. China grew by 6.6 percent in 2018.

On Global GDP

  • The IMF has also cut its forecast for world GDP growth by 0.1 percentage point each in 2019 and 2020 to 3.2% and 3.5%, respectively.
    • The growth forecast for emerging markets and developing economies has also been cut by 0.3 percentage points for 2019 to 4.1% and by 0.1 percentage points for 2020 to 4.7%.
  • IMF noted that a number of central banks, including RBI, have turned dovish or communicated a more cautious view on the outlook. Earlier in June, RBI had cut the repo rate by 25 basis points for the third time in a row.
    • The Fund said investors now anticipate more significant policy easing from central banks, including in the United States.
    • This supportive environment has helped markets regain their poise.

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