Sharp slowdown in India drag on world economy, says IMF

WION Web Team
New Delhi, Delhi, IndiaUpdated: Jan 20, 2020, 07:18 PM IST

File photo Photograph:(Reuters)

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Monetary and fiscal stimulus is expected to lift India's growth rate back to 6.5% in 2021, although this is still 0.9 percentage point lower than forecast in October.

The International Monetary Fund on Monday slashed its 2020 global growth forecast due to the slowdown in India and other emerging markets. 

The sharp drop for India "accounts for the lion's share of the downward revisions," the IMF said.

However, it said that improving US-China trade tensions have eased uncertainty and the world economy may have hit bottom but a sharp slowdown in India is creating a drag worldwide, the IMF said.

In the latest update to the World Economic Outlook, the IMF trimmed down the global growth estimate for 2020 by one-tenth compared to the October report, dropping it to 3.3 per cent, and lowered the 2021 forecast by a bit more, to 3.4 per cent.

The reductions reflect the IMF's reassessment of economic prospects for a number of major emerging markets, notably India, where domestic demand has slowed sharply amid contraction of credit and stress in the non-banking sector.

India saw a sharp, 1.2 percentage point cut to its 2020 growth forecast to 5.8 per cent, the IMF's biggest markdown for any emerging market, because of the domestic credit crunch. 

Gravitas: Summarising the state of the Indian economy

The IMF also downgraded other economies including Chile, which has been hit by social unrest. It said that Mexico will grow just 1.0 per cent in 2020, down from 1.3 per cent forecast in October.

Meanwhile, the IMF upgraded China's 2020 growth forecast by 0.2 percentage point to 6.0% because the US trade deal included a partial tariff reduction and cancelled tariffs on Chinese consumer goods that had been scheduled for December. These tariffs had been built into the IMF's previous forecasts.

But the Fund did not give a boost to its US growth forecast for China's pledges to increase purchases of US goods and services by $200 billion over two years. Instead, the IMF said 2020 US growth would be 0.1 percentage point lower than forecast in October, at 2.0% because of the fading stimulus effects from 2017 tax cuts and the Federal Reserve's monetary easing.

(With inputs from agencies)