UN revises downward India's GDP growth for 2017

17 May 2017

A United Nations report has revised downward India's economic growth forecast for 2017 to 7.3 per cent, but predicted a faster 7.9 per cent growth in GDP next year, even as it remains the fastest-growing large developing economy, way ahead of China, which is projected to grow at 6.5 per cent in 2017 and 2018.

The UN World Economic Situation and Prospects as of mid-2017 report, launched today, however, cautioned that the stressed balance sheets of state-run banks could prevent strong investment rebound in the near term, unless the government takes corrective measures.

The UN had, in January, estimated India's GDP to grow at 7.6 per cent during the year 2017 and at a slower 7.7 per cent in 2018 at the time when the report was launched.

The disruptions in the banking sector, which has emerged as a cause of concern for the Narendra Modi government, will have an adverse effect on investment rebound in the country, the report pointed out.

"Despite temporary disruptions from the demonetisation policy, economic conditions in India remain robust, underpinned by sound fiscal and monetary policies and the implementation of key domestic reforms. Yet, stressed balance sheets in the banking and corporate sectors will prevent a strong investment rebound in the near term," the report said.

Also, the report noted, the current account deficit have narrowed "visibly" in India, Brazil and South Africa, and some countries have undergone significant corporate deleveraging, particularly Russia.

The report said world gross product is expected to expand by 2.7 per cent in 2017 and 2.9 per cent in 2018, unchanged from UN forecasts released in January this year. This marks a notable acceleration compared to just 2.3 per cent in 2016.

Over the last six months, global economic progress has predictably picked up, but low-level growth in some regions has tempered efforts to meet globally agreed development goals, according to the report.

Lenni Montiel, assistant secretary-general for economic development in the UN Department of Economic and Social Affairs, underscored the ''need to reinvigorate global commitments to international policy coordination to achieve a balanced and sustained revival of global growth, ensuring that no regions are left behind.''

The WESP report identified revived global trade, citing a tentative recovery in world industrial production driven by rising import demand from East Asia. However, economic recovery in South America is emerging more slowly than anticipated, and gross domestic product (GDP) per capita is declining or stagnant in several parts of Africa.

According to the report, firmer growth in many economies, both developed and in transition, underpin global economic recovery – with East and South Asia remaining the world's most dynamic regions.

The report ''confirms that at the global level, economic growth has strengthened in recent months in line with the forecast presented in January,'' Diana Alarcón, chief of the Global Economic Monitoring Unit, told journalists during a press conference at UN headquarters.

She said ''industrial production has picked up, world trade is reviving, and economic sentiment has generally improved. World Gross Product is expected to expand by 2.7 percent in 2017 and 2.9 percent in 2018.''

However, she said, ''the modest strengthening of economic activity has not been evenly spread across countries'' as ''recovery remains insufficient in many regions for rapid progress towards achieving the Sustainable Development Goals (SDGs).''

The report projects the least developed countries to grow 4.7 per cent in 2017 and 5.3 per cent in 2018, well below SDGs target of at least 7 per cent GDP growth.

The report notes that under the current growth trajectory and assuming no decline in income inequality, nearly 35 per cent of the population in LDCs may remain in extreme poverty by 2030.

Additional policy efforts are needed to foster an environment that will accelerate medium-term growth and tackle poverty through policies that address inequalities in income and opportunity.

The report points to a combination of short-term policies supporting consumption among the most deprived and longer-term policies, including improved healthcare and education access and rural infrastructure investment.

According to the report, inflation dynamics in developed economies have reached a turning point, largely dissipating risks of prolonged deflation. By contrast, inflationary pressures have eased in many large emerging markets, allowing interest rates to come down.

The report stresses heightened uncertainty over international policy, hindering a global rebound in private investment. In many emerging economies, corporate sectors are vulnerable to sudden changes in financial conditions and destabilizing capital outflows, which could be triggered by faster-than-expected interest rate hikes in the United States.

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