IMF sees India’s growth slowing to 6.1 per cent in 2012

16 Jul 2012


India and other emerging economies, already growing at a slow pace, are expected to further decelerate as the sluggish global recovery shows signs of further weakness, mainly because of continuing financial problems in Europe, International Monetary Fund (IMF) said in a regular update to its World Economic Outlook.

IMF now expects India to grow at 6.1 per cent in 2012, down 0.7 per cent from its earlier estimate of 6.8 per cent, in view of the deteriorating global economic situation.

IMF, in its update of the World Economic Outlook, has also cut India's growth projection for 2013 by a similar margin to 6.5 per cent from 7.2 per cent projected earlier.

"In the past three months, the global recovery, which was not strong to start with, has shown signs of further weakness," it said while updating its April Outlook.

The IMF estimates global economy to grow at 3.5 per cent in 2012 against 3.6 per cent projected earlier. For 2013, the growth forecast has been lowered to 3.9 per cent, from 4.1 per cent, indicating harder times ahead.

The IMF said the relatively minor setback to the global outlook under its baseline projections is based on three important assumptions:

  • that there will be enough policy action for financial conditions in the so-called euro area periphery, which includes Greece and Spain, to ease gradually through 2013;
  • that US fiscal policy does not tighten sharply in 2013; and
  • that steps by some major emerging markets to stimulate growth gain traction.

"Downside risks to this weaker global outlook continue to loom large," it said, adding that the most immediate risk is "still that delayed or insufficient policy action will further escalate the euro area crisis."

For the emerging and developing economies as a whole IMF has projected a growth of 5.6 per cent in 2012, 0.1 per cent lower than the growth projection made three months ago.

"Growth momentum has also slowed in various emerging market economies, notably Brazil, China, and India. This partly reflects a weaker external environment, but domestic demand has also decelerated sharply in response to capacity constraints and policy tightening over the past year," IMF said.

Two other IMF reports were also released today. The update to the Global Financial Stability Report (GFSR) said that risks to financial stability increased in the second quarter of 2012 because of the continued slow global recovery and fears about the quality of bank assets in Europe. An update to the IMF's Fiscal Monitor said that fiscal adjustment in both advanced and emerging economies is proceeding as expected.

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