IMF raises India’s growth forecast to 7.5%; to be the fastest among major nations

15 Apr 2015


The International Monetary Fund (IMF) has raised its growth forecast for India predicting a 7.5-per cent growth in 2015 and 2016, which is the fastest among major nations.

India's growth figures projected in the IMF's April economic outlook is significantly higher from its January outlook of 6.3 per cent and 6.5 per cent for 2015 and 2016 respectively.

The IMF's global growth forecast remains unchanged at 3.5 per cent in 2015, with a marginal 0.1-per cent increase to 3.8 per cent next year compared to its earlier predictions.

In advanced economies, growth is projected to strengthen to 2.4 per cent in 2015 relative to 1.8 per cent in 2014, but in most emerging markets and developing economies, with the exception of India, it is expected to decrease to 4.3 per cent from 4.6 per cent.

''A number of complex forces are shaping the prospects around the world,'' said Olivier Blanchard, IMF economic counselor and director of research.

''Legacies of both the financial and the euro area crises, weak banks and high levels of public, corporate, and household debt, are still weighing on spending and growth in some countries. Low growth in turn makes deleveraging a slow process,'' he stated.

Two major factors dominate the current scene, which are decline in prices of oil and exchange rate movements.

''Large movements in relative prices whether exchange rates or the price of oil, creates winners and losers,'' Blanchard said.

Growth in the US, the world's largest economy, is forecast to be 3.1 per cent in 2015 and 2016, down by 0.5 per cent and 0.2 per cent respectively from the January estimates.

It is expected that domestic demand, supported by lower oil prices and accommodative monetary policy will drive growth in the US despite some drag on net exports and recent dollar appreciation.

There are signs of a pick up in the euro area supported by lower oil prices, low interest rates and weaker euro. The economy is expected to grow 1.5 per cent and 1.6 per cent respectively in 2015 and 2016, up by 0.3 per cent and 0.2 per cent.

In Europe, growth prospects differ widely among major economies. The UK is expected to grow 2.7 per cent in 2015, surpassing Germany's 1.6 per cent and France's 1.2 per cent. Italy will see a 0.5 per cent growth for the year.

China's emphasis on reducing vulnerabilities from recent rapid credit and investment growth will likely cause a further slowdown in investment, particularly in real estate. The world's second-largest economy is expected to post 6.8-per cent growth in 2015 followed by 6.3 per cent in 2016.

After a disappointing 2014, Japan, the world's third-largest economy, is forecast to register a 1-per cent expansion in 2015 followed by 1.2 per cent next year on the back of a weaker yen and lower oil prices.

Russia is expected to fall into recession in 2015 and 2016 as oil price slump and geopolitical tensions will rein in investment. The nation's economy is forecast to shrink 3.8 per cent in 2015 and further 1.1 per cent in 2016.

The IMF said that the outlook is likely to worsen for many commodity exporting nations, with Brazil also falling into recession this year. Brazil's economy is expected to shrink by 1 per cent before returning to a 1-percent growth next year.

Growth forecast for Canada, has also been revised downward to 2.2 per cent in 2015 and 2.0 per cent in 2016.

According to the IMF, macroeconomic risks such as recession and deflation in the euro area have slightly decreased, but financial and geopolitical risks have increased. It urges decisive policies by governments to boost output choosing the right reforms.

''The proper menu differs by country,'' said Blanchard. ''Given the short-term political costs associated with many of these reforms, the challenge will be to choose carefully among them.''

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