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IMF projects higher GDP growth for India, maintains global forecast

24 July 2017

The International Monetary Fund (IMF) has projected a pick-up in India's economic growth while it kept growth forecasts for the world economy unchanged for this year and next. It also revised up growth expectations for the eurozone and China.

"Growth in India is forecast to pick up further in 2017 and 2018, in line with the April 2017 forecast," the IMF said in its latest World Economic Outlook (WEO) report released today.

While overall global economic growth of 3.5 per cent in 2017 and 3.6 per cent in 2018 projected in the April World Economic Outlook (WEO) remains on track, IMF said the contributions at the country level is expected to differ.

In its update of the WEO, the IMF said India will stay ahead of China in growth sweepstakes in 2017 as well as 2018 even as it retained the country's GDP forecast at 7.2per cent for the current fiscal.

According to IMF's World Economic Outlook Update, India's growth is projected to accelerate to 7.7 per cent in 2018-19, from 7.2 per cent forecast for 2017-18.

While the IMF has retained India's growth estimate as provided in the World Economic Outlook (WEO) in April, in the case of China, the forecast has been marginally raised to 6.7 per cent in 2017 and 6.4 per cent in 2018 from earlier projections.

India, however, will continue to grow faster than China in 2017 as well as 2018.

IMF said US economy is expected to grow at a slower pace than projected in April, primarily on the assumption that fiscal policy will be less expansionary going forward than previously anticipated.

The IMF now expects US growth to be around 2.1 per cent in 2017 and 2018, slightly down from projections of 2.3 per cent and 2.5 per cent, respectively, just three months ago. The Fund now expects President Trump's planned stimulus measures would have no much impact on US economy in the absence of details of those plans.

IMF has lowered its growth forecast for the UK to 1.7 per cent for 2017, but said growth in the euro zone was now expected to be slightly stronger in 2018 and pointed to "solid momentum".

Growth in Germany has been revised up by 0.2 points to 1.8 per cent, France by 0.1 points to 1.5 per cent, while Italy and Spain have both been revised up by 0.5 points to 1.3 per cent and 3.1 per cent respectively.

It upgraded 2017 GDP growth projections for the euro zone to 1.9 per cent, up 0.2 percentage point from April. The IMF said euro zone growth would be slightly stronger at 1.7 per cent, a 0.1-percentage-point change from just three months ago.

Growth has been revised up for Japan and especially the euro area, where positive surprises to activity in late 2016 and early 2017 point to solid momentum, IMF said.

China's growth projections have also been revised up, reflecting a strong first quarter of 2017 and expectations of continued fiscal support.

Emerging and developing economies are projected to see a sustained pickup in activity, with growth rising from 4.3 per cent in 2016 to 4.6 per cent in 2017 and 4.8 per cent in 2018. These forecasts reflect upward revisions, relative to April, of 0.2 percentage point for 2016, and 0.1 percentage point for 2017.

As in the most recent WEO forecast vintages, growth is primarily driven by commodity importers, but its pickup reflects to an important extent gradually improving conditions in large commodity exporters that experienced recessions in 2015–16, in many cases caused or exacerbated by declining commodity prices.

Inflation in advanced economies remains subdued and generally below targets; it has also been declining in several emerging economies, such as Brazil, India, and Russia, it noted.

''While risks around the global growth forecast appear broadly balanced in the near term, they remain skewed to the downside over the medium term. On the upside, the cyclical rebound could be stronger and more sustained in Europe, where political risk has diminished. On the downside, rich market valuations and very low volatility in an environment of high policy uncertainty raise the likelihood of a market correction, which could dampen growth and confidence,'' IMF stated in its update.

Monetary policy normalisation in some advanced economies, notably the United States, could trigger a faster-than-anticipated tightening in global financial conditions and other risks discussed in the April 2017 WEO, including a turn toward inward-looking policies and geopolitical risks, remain salient, it said.

Projected global growth rates for 2017–18, though higher than the 3.2 per cent estimated for 2016, are below pre-crisis averages, especially for most advanced economies and for commodity-exporting emerging and developing economies.

Among the former, many face excess capacity as well as headwinds to potential growth from aging populations, weak investment, and slowly advancing productivity. In view of weak core inflation and muted wage pressures, policy settings should remain consistent with lifting inflation expectations in line with targets, closing output gaps, and - where appropriate - external rebalancing.

Reforms to boost potential output are of the essence, and slow aggregate output growth makes it even more important that gains are shared widely across the income distribution. Financial stability risks need close monitoring in many emerging economies. Commodity exporters should continue adjusting to lower revenues, while diversifying their sources of growth over time, the WEO adds.

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