IMF Cuts India GDP Growth Forecast For 2019 And 2020

The International Monetary Fund has cut India’s GDP growth forecast to 7 percent for 2019 and 7.2 percent for 2020, reflecting a weaker-than expected outlook for demand. India, however, will still be the fastest growing major economy in the world and much ahead of China, IMF said.

"India's economy is set to grow at 7.0 percent in 2019, picking up to 7.2 percent in 2020. The downward revision of 0.3 percentage points for both years reflects weaker-than expected outlook for domestic demand," IMF said in its World Economic Update released Tuesday.

In China, the negative effects of escalating tariffs and weakening external demand have added pressure to an economy already in the midst of a structural slowdown and needed regulatory strengthening to rein in high dependence on debt, IMF said.

With policy stimulus expected to support activity in the face of the adverse external shock, China's GDP growth is forecast at 6.2 percent in 2019 and 6.0 percent in 2020—0.1 percentage point lower each year relative to the April World Economic Outlook projection, IMF said.

Releasing the report in Chile's capital Santiago, IMF's Indian-origin Chief Economist Gita Gopinath said the IMF is revising downward its projection for global growth to 3.2 percent in 2019 and 3.5 percent in 2020.

"While this is a modest revision of 0.1 percentage points for both years relative to our projections in April, it comes on top of previous significant downward revisions. The revision for 2019 reflects negative surprises for growth in emerging market and developing economies that offset positive surprises in some advanced economies," Gopinath said.

While GDP growth is projected to improve between 2019 and 2020, close to 70 percent of the increase relies on an improvement in the growth performance in stressed emerging markets and is therefore subject to high uncertainty.

Global growth, Gopinath said, is sluggish and precarious, but it does not have to be this way because some of this is self-inflicted.

Dynamism in the global economy is being weighed down by prolonged policy uncertainty as trade tensions remain heightened despite the recent U.S.-China trade truce, technology tensions have erupted threatening global technology supply chains, and the prospects of a no-deal Brexit have increased, she said.

Gopinath said a major downside risk to the outlook remains an escalation of trade and technology tensions that can significantly disrupt global supply chains.

The combined effect of tariffs imposed last year and potential tariffs envisaged in May between the U.S. and China could reduce the level of global gross domestic product in 2020 by 0.5 percent, she said.

With global growth subdued and downside risks dominating the outlook, the global economy remains at a delicate juncture, she said.

It is therefore essential that tariffs are not used to target bilateral trade balances or as a general-purpose tool to tackle international disagreements, Gopinath said.

"To help resolve conflicts, the rules-based multilateral trading system should be strengthened and modernised to encompass areas such as digital services, subsidies and technology transfer," IMF's chief economist added.