Why IMF Cut India's Growth Forecast To 4.8%

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Gita Gopinath, IMF Chief Economist

The IMF on Monday lowered India’s economic growth estimate for the current fiscal to 4.8% and listed the country’s much lower-than-expected GDP numbers as the single biggest drag on its global growth forecast for two years.

In October, the International Monetary Fund (IMF) had pegged India economic growth at 6.1% for 2019.

The slowdown in India has pushed down the global forecast by “0.1 per cent”, IMF Chief Economist Gita Gopinath told NDTV at Davos.

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The IMF’s World Economic Outlook highlighted a link between “intensifying social unrest across many countries-reflecting, in some cases, the erosion of trust in established institutions and lack of representation in governance structures,” the report quoted.

Asked whether this referred to India, Gopinath told NDTV, “I have nothing really significant to say. It is something we will follow and we will see what this does in our next assessment in April”.

Listing decline in rural demand growth and an overall credit sluggishness for lowering of India forecasts, Gopinath however said the growth momentum should improve next year due to factors like positive impact of corporate tax rate reduction.

“Global growth, estimated at 2.9% in 2019, is projected to increase to 3.3% in 2020 and inch up further to 3.4% in 2021,” the IMF said while releasing an update to its World Economic Outlook (WEO).

Compared to the October WEO forecast, the estimate for 2019 and the projection for 2020 represent 0.1 percentage point reductions for each year while that for 2021 is 0.2 percentage point lower.

“A more subdued growth forecast for India... accounts for the lion’s share of the downward revisions,” the IMF said ahead of the start of the World Economic Forum (WEF) annual summit here.

India-born IMF Chief Economist Gita Gopinath said growth in India slowed sharply owing to stress in the non-bank financial sector and weak rural income growth.

The country’s growth is estimated at 4.8% in 2019, projected to improve to 5.8% in 2020 and 6.5% in 2021 (1.2 and 0.9 percentage point lower than in the October WEO), supported by monetary and fiscal stimulus as well as subdued oil prices, it added.

2019 refers to fiscal year 2019-20.

India’s economy grew just 4.5% in July-September 2019 periodthe weakest pace in nearly six years. The Indian government said it has been taking various measures to bolster growth.

For the emerging market and developing economy group, the IMF said growth is expected to increase to 4.4% in 2020 and 4.6% in 2021 (0.2 percentage point lower for both years than in the October WEO) from an estimated 3.7% in 2019.

“The growth profile for the group reflects a combination of projected recovery from deep downturns for stressed and underperforming emerging market economies and an ongoing structural slowdown in China,” it noted.

Gopinath also said the pickup 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 underperforming emerging and developing economies such as Brazil, India and Mexico.

Further, the IMF said the balance of risks to the global outlook remains on the downside, but less skewed toward adverse outcomes than in the October WEO.

(With PTI inputs)

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