IMF slashes India’s 2009 growth to 6.3%

IMF slashes India’s 2009 growth to 6.3%
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First Published: Fri, Nov 07 2008. 12 36 AM IST

Updated: Fri, Nov 07 2008. 12 36 AM IST
Washington: The International Monetary Fund, or IMF, predicted lower growth in India and economic contractions in the US, Japan and euro region next year, calling for further interest rate cuts and fiscal stimulus.
Its estimate for India’s growth in 2009 is now 6.3%, 0.6 percentage points lower than its earlier estimate of 6.9% made just a month ago. And its estimate for the country’s growth in 2008 is down 0.1 percentage points to 7.8%.
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An economist said India could grow faster than IMF’s estimate. “Growth next year will definitely be slower than this year, but it may still touch 7%. New oil refineries coming up next year will also boost GDP (gross domestic product). I agree with IMF that growth momentum will slow further, but it may pick up towards the end of next year,” said Dharmakirti Joshi, principal economist with credit rating agency Crisil Ltd. Joshi’s estimate of growth this year is 7.5%.
“Markets have entered a vicious cycle of asset de-leveraging, price declines and investor redemptions,” IMF said in an update to its World Economic Outlook report, released in Washington on Thursday. “Global action to support financial markets and provide further fiscal stimulus and monetary easing can help limit the decline in world growth.”
The revisions reflect a further choking-off of credit to companies and businesses in the past month. The Bank of England on Thursday declared the most serious banking “disruption” in almost a century, cutting its benchmark interest rate to the lowest level since 1955.
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US gross domestic product will contract 0.7%, Japan’s will shrink 0.2% and the euro area’s 0.5% in 2009, IMF said on Thursday in Washington. The fund last month foresaw 0.1% US growth, with expansions of 0.5% in Japan and 0.2% in the euro zone.
Global growth will be 2.2% next year, down from 3.7% this year, IMF said. The fund said in its semiannual World Economic Outlook report on 7 October that world GDP would rise 3% in 2009. As recently as July, IMF economists expected a 3.9% expansion.
IMF has said that a growth rate of 3% or less is “equivalent to a global recession”.
Growth in the US “will suffer as households respond to depreciating real and financial assets and tightening financial conditions,” IMF said. In Japan, “growth from net exports is expected to decline”. The 15-nation euro region will be “hard hit” by the slowdown, the fund said.
IMF also warned on Thursday of growing risks of deflationary conditions in advanced economies.
“There is a clear need for additional macroeconomic stimulus relative to what has been announced thus far,” the fund said. “Room to ease monetary policy should be exploited, especially now that inflation concerns have moderated.”
As the credit crunch widens, the reversal in major developed countries is spreading to poorer nations, increasing demand for IMF loans.
In emerging and developing countries, GDP in 2009 will increase 5.1%, less than the 6.1 % expansion the fund predicted in October. China’s growth will measure 8.5% next year, weaker than the 9.3% forecast a month ago.
Since the fund produced its forecast in October, the outlook for developing countries has deteriorated as investors shunned their currencies and bonds, sending borrowing costs climbing.
India’s stock market and currency are both down. The benchmark index of the Bombay Stock Exchange has fallen 52.02% since January and the rupee has lost 17.42% against the dollar in the same period.
Mint’s Asit Ranjan Mishra contributed to this story.
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First Published: Fri, Nov 07 2008. 12 36 AM IST