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Demonetisation effect: IMF cuts India growth forecast for 2017

The IMF said China's strong growth was clouded in the medium term by 'growing vulnerabilities'. Photograph: (Reuters)

Reuters New Delhi Apr 18, 2017, 01.47 PM (IST)

The International Monetary Fund(IMF) today trimmed India's annual growth forecast by 0.4 percentage point to 7.2 per cent for 2017, citing the impact of demonetisation.

"In India, the growth forecast for 2017 has been trimmed by 0.4 percentage point to 7.2 per cent, primarily because of the temporary negative consumption shock induced by cash shortages and payment disruptions from the recent currency exchange initiative," the International Monetary Fund (IMF) said in its latest annual World Economic Outlook (WEO).

However, the IMF gave India a favourable growth forecast in the medium term.
"Medium-term growth prospects are favourable, with growth forecast to rise to about eight per cent over the medium term due to the implementation of key reforms, loosening of supply-side bottlenecks, and appropriate fiscal and monetary policies," the IMF said.

The IMF also said China's strong growth was clouded in the medium term by "growing vulnerabilities" associated with its reliance on policy easing and credit-financed investment. This could prompt a sharp tightening of financial conditions that could cause spillovers to many other countries.

In its latest World Economic Outlook, it said chronically weak advanced economies are expected to benefit from a cyclical recovery in global manufacturing and trade that started to gain momentum last summer.

"The economic upswing that we have expected for some time seems to be materializing," IMF chief economist Maurice Obstfeld wrote in the report.

The IMF lifted Japan's 2017 growth projection by 0.4 percentage point from January, to 1.2 per cent, while the eurozone and China both saw a 0.1 percentage point growth forecast increase to 1.7 per cent and 6.6 per cent, respectively.

It held the US growth forecast steady at 2.3 per cent, which still represents a substantial jump from 1.6 per cent growth in 2016,  partly due to expectations that President Donald Trump will cut taxes and increase government spending.

The IMF also revised Britain's growth forecast to 2.0 per cent for 2017, up a half percentage point from January. The Fund said negative effects from the UK vote to leave the European Union are taking longer to materialize.

(Inputs: Reuters, PTI)

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