By Meghaa Gangahar
The International Monetary Fund (IMF) released its World Economic Outlook report on 24th July. The outlook for India’s GDP growth rate remained in line with the April 2017 forecast of 7.2 percent in 2017-18 and 7.7 percent in 2018-19. Moreover, the IMF also kept the world GDP outlook constant at 3.5 percent in 2017 and 3.6 percent in 2018. Both of these are upward projections, as India grew at only 7.1 percent in 2016-17, while the world economy grew at a 3.2 percent rate during this period.
Even though economic activity slowed down due to demonetization in India, the growth figure for 2016 was higher than previously expected. This resulted from high government spending along with revisions of data that revealed stronger momentum in the first half of the year.
The global outlook
The outlook suggests a positive sentiment for the world economy as it also predicts lower risks in the medium term. However, the projected growth year for the world still remains lower than the rates that prevailed preceding the global financial crisis of 2008.
Some of the trends that the IMF intimates the economies to watch out for include monetary policy normalization in developed countries, especially the United States. The fund warns that this could trigger a faster-than-anticipated tightening in global financial conditions. Currently, a shift to inward-looking protectionist policies and geopolitical risks prevail. Regardless, the IMF cautions against protectionist tendencies and urges the countries to adopt a more multilateral approach in the view of the changing global economy.
Changes in the global mix
Though the global growth projections remain unchanged, the country level contributions may see some changes. The IMF revisited and revised its forecast for several countries. The US predictions of growth are lower than the figures of April. This indicates that the fiscal policy won’t be as expansionary in the future as was predicted previously. According to the IMF, inflation in developed countries will remain low and below previous targets. Inflation has also been declining in many emerging economies such as Brazil, India and Russia.
Among other revisions were the growth forecasts for China and Japan and the euro area, which were all shifted upward. Due to a pickup in global trade and stronger domestic demand, the growth in ASEAN—5 economies is expected to remain at a robust 5 percent, with only a slight upward revision due to strong first quarter outturns.
China inches closer to India
China’s GDP growth forecast was raised to 6.7 per cent for 2017-18 and 6.4 per cent for 2018-19. The forecast was shifted up by 0.1 per cent for 2017-18 and 0.2 per cent for 2018-19. The underlying reasons for this revision include outturn of the first quarter that exceeded expectations and China’s easing of policy supplemented by supply-side reforms such as efforts to reduce excess capacity in the industrial sector. A delay in fiscal adjustment also supports a higher expected growth. However, it may increase debt and in turn downside risks in the long run. Despite the rise in expected growth rate for China, India will continue to grow faster than its fellow rapidly developing country; it remains the fastest growing major economy in the world.
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