By?Meghaa Gangahar
The International Monetary Fund (IMF) released its World Economic Outlook on 24th July. The outlook for India?s GDP growth rate stayed in line with April 2017 forecast of 7.2 per cent in 2017-18 and 7.7 per cent in 2018-19. Moreover, the IMF also kept the World GDP outlook constant at 3.5 per cent in 2017 and 3.6 per cent in 2018. Both of these are upward projections as India grew at 7.1 per cent in 2016-17, while the World economy grew at 3.2 per cent in this period.
Even though economic activity slowed down due to demonetization in in India, the growth figure for 2016 was higher than it was expected. This was due to high government spending along with revisions of data that revealed stronger momentum in the first half of the year. According to the statistical data on growth, India?s economy was not set back much in terms of growth rate due to demonetization.
The Global Outlook
The outlook suggests a positive sentiment for the world economy as it also predicts lower risks in the medium term. However, the projected growth year for the world still remains lower than the rates that prevailed preceding the global financial crisis of 2008.
Some of the trends that the IMF intimates the economies to watch out for include monetary policy normalization in some developed countries, especially the United States. The fund warns that this could trigger a faster-than-anticipated tightening in global financial conditions. A shift to inward-looking protectionist policies and geopolitical risks prevail. The IMF cautions against protectionist tendencies and urges the countries to adopt a more multilateral approach in the view of the changing global economy.
Changes in the global mix
Though the global growth projections remain unchanged, the country level contributions may see some changes. The IMF revisited and revised its forecast for a few countries. The US predictions of growth are lower than the figures of April. This indicates that the fiscal policy won?t be as expansionary in the future as was predicted previously. According to the IMF, inflation in developed countries will also remain low and below the targets. Inflation has also been observed to be declining in many emerging economies such as Brazil, India and Russia.
Among other revisions were the forecasts for China and Japan and the euro area, as all of their growth rate forecasts were shifted upward. Due to a pickup in global trade and stronger domestic demand, the growth in ASEAN ? 5 economies is expected to remain at a robust 5 per cent, with only a slight upward revision due to strong first quarter outturns.
China inches closer to India, though still lags behind
China?s GDP growth forecast was raised to 6.7 per cent for 2017-18 and 6.4 per cent for 2018-19. The forecast was shifted up by 0.1 per cent for 2017-18 and 0.2 per cent for 2018-19. The underlying reasons for this revision include outturn of the first quarter that exceeded expectations and China?s easing of policy supplemented by supply-side reforms such as efforts to reduce excess capacity in the industrial sector. A delay in fiscal adjustment also supports a higher expected growth, however it may increase debt and in turn downside risks in the long run. Despite the raise in expected growth rate for China, India will continue to grow faster than its fellow rapidly developing country; it remains the fastest growing major economy in the world.
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