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Editorial: India Downgraded

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Port Wings, 29 Jan 2019:

The International Monetary Fund (IMF) lowered India’s economic growth forecast to 4.8 per cent for this fiscal year owing to the crisis in the non-banking financial sector and weak rural demand. It also cut the world’s growth estimate and blamed the slowdown in India for its move.

The IMF projection, 1.3 percentage points lower than its earlier estimates, is less than the 5 per cent projected by the official advance estimates. The IMF projected India’s economy to grow by 5.8 per cent next year, which is 1.2 percentage points less than its earlier forecast. It also forecast the economy to grow by 6.5 per cent in 2021-22 which is 0.9 percentage point lower than earlier projections.
Despite a moderate pickup in growth, the International Monetary Fund has said uncertainty in US-China trade tensions, along with sluggish growth in India, will put a drag on the global economy in 2020.

The International Monetary Fund (IMF) has said that although a global economic slowdown is easing, recovery will be sluggish moving into 2020.

In the latest update to its World Economic Outlook, released Monday, the IMF lowered its global growth estimate for 2020 to 3.3%, 0.1% lower than the previous report released in October.
Nevertheless, the IMF numbers for 2020 indicate a modest increase in growth compared to 2019, which saw the global economy grow by 2.9% 
The forecast comes a day before political and corporate leaders gather for the annual World Economic Forum in Davos, Switzerland.
Presenting the revised numbers in Davos, IMF managing director Kristalina Georgieva said data suggests positive trends in international trade and industrial output.
“After a synchronized slowdown in 2019, we expect a moderate pickup in global growth this year and next,” Georgieva told a news conference.
However, the IMF chief warned that the global economic growth in 2020 is still vulnerable to factors like political protests in numerous countries, the recent tensions between the US and Iran and the ongoing trade war between Washington and Beijing.
“We are all adjusting to live with the new normal of higher uncertainty,” she said. “We are already seeing some tentative signs of stabilization but we have not reached a turning point yet.”
The IMF said its projections depend on “avoiding further escalation” in an ongoing “unresolved” economic dispute between the US and China.
President Donald Trump signed a deal with China last week that eases tension in the short term but leaves tariffs in place on two-thirds of Chinese goods imported to the US. “Trade truce is not the same as trade peace,” Georgieva Friday, commenting on the deal. 
“Policy missteps at this stage would further enfeeble an already weak global economy,” the IMF said in the quarterly report.
A projected slowdown in India is also creating a global drag on growth, and the IMF said the Indian slowdown “accounts for the lion’s share of the downward revisions.”
Georgieva said India struggles with declining consumption and investments, budget deficits and delays in making structural reforms. 
Economist Gita Gopinath said in a blogpost that the biggest contributor to the revision of global economic growth was India, where growth slowed sharply owing to stress in the non-banking financial sector and weak rural income growth. She, however, said growth momentum should improve next year due to factors like positive impact of corporation tax rate reduction.
She said the pick-up in global growth for 2020 remains highly uncertain as it relies on improved growth outcomes for stressed economies like Argentina, Iran, and Turkey, and for under-performing emerging and developing economies such as Brazil, India, and Mexico.

The downward revision primarily reflects negative surprises to economic activity in a few emerging market economies, notably India, which led to a reassessment of growth prospects over the next two years, the IMF added. 

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