Indian economy likely to rebound by year-end: IMF

The International Monetary Fund (IMF) expects the Indian economy to rebound from the current slowdown towards the end of the current year or early next year. For India, the IMF forecasts growth to slow markedly in 2009 before starting to rebound toward year-end.

The IMF, which earlier slashed its 2009 GDP forecast from 5.1 per cent to 4.5 per cent, revised its fourth quarter (October-December 2009) outlook to 4.8 per cent.

IMF estimates India's GDP to grow at 5.6 per cent in 2010 - lower than its earlier projection of 6.5 per cent growth - with a fourth quarter (October-December 2010) growth of 5.9 per cent.

"For India, we expect growth to slow markedly in 2009 before starting to rebound toward year end," the IMF said in its 'Regional Economic Outlook: Asia and Pacific'.

Despite India's relatively low dependence on exports, IMF said the country will be particularly affected by the financial shock due to its external financial linkages.

Moreover, IMF said India's strong growth in recent years owed much to favourable credit conditions and overseas investment flows.

''With external financing having tightened and the domestic credit cycle having turned, investment growth is expected to be severely curtailed, and so is GDP growth," IMF said.

For Asian economies as a whole, IMF said, ''forceful'' fiscal measures are still needed to lift the region out of the recession quickly.

GDP in emerging Asia, excluding China and India, plummeted by a seasonally adjusted 15 per cent on an annualised basis in the last quarter of 2008, with the IMF forecasting an average decline of 2.9 per cent for 2009.

In China, IMF said while GDP growth will slow notably from the average pace of the recent past, the aggressive policy response is expected to support domestic demand, maintain growth and generate jobs.

IMF projected growth in Asia, including Japan, Australia and New Zealand, at 1.3 per cent this year, against 5.1 per cent in 2008. For 2010, the multilateral lender said these economies may expand 4.3 per cent.

''In Southeast Asia, Thailand, Malaysia, and the Philippines are going to be hit more severely by the global crisis, owing to their higher dependence on advanced manufacturing exports and large spillovers from the external sector to domestic demand, affecting consumers and investor confidence,'' IMF said.

''In Thailand and Malaysia, growth will be negative on average in 2009 and will resume firmly only next year, as the effect of strong fiscal efforts eventually complement the improvement in global conditions,'' it added.

''In many ways, this severe impact was unexpected. Asia is far from the epicenter of the crisis, not just geographically but also in the sense that it did not indulge in the financial practices that led to serious problems in advanced economies' banking systems,'' the IMF said.

''Moreover, before the crisis the region was in sound macroeconomic shape, and thus in a strong position to resist the pressures emanating from advanced economies. In the event, however, the impact on Asia has been even swifter and sharper than in other regions,'' it noted.

Asian governments are expected to pump more than $950 billion into their economies through increased expenditure, tax cuts and cash handouts to kick-start local consumer and business spending.