United Nations: The United Nations (UN) has revised downward India’s GDP growth forecast for 2017 but predicted an increased 7.9% GDP growth next year as it cautioned that stressed balance sheets in the banking sector due to bad loans will prevent strong investment rebound in the near term.
The UN World Economic Situation and Prospects as of mid- 2017 report, launched on Tuesday, said India is projected to achieve a 7.3% growth in 2017, a downward revision from the 7.7% forecast for the year made when the report was launched in January. The revised report, however, projected that India will achieve an impressive 7.9% GDP growth in 2018, revising upwards its January estimates when it had said India’s growth will be 7.6% next year.
The report warned that stressed balance sheets in the country’s banking sector, which has emerged as a cause of concern for the Narendra Modi government, will have an adverse effect on investment rebound in the country.
“Despite temporary disruptions from the demonetisation policy, economic conditions in India remain robust, underpinned by sound fiscal and monetary policies and the implementation of key domestic reforms. Yet, stressed balance sheets in the banking and corporate sectors will prevent a strong investment rebound in the near term," the report said.
It noted that current accounts deficits have narrowed “visibly" in India, Brazil and South Africa, and some countries have undergone significant corporate deleveraging, particularly Russia. Despite India’s growth being revised downward, it remains the fastest growing large developing economy, way ahead of China which is projected to grow at 6.5% in 2017 and 2018.
The report said world gross product is expected to expand by 2.7% in 2017 and 2.9% in 2018, unchanged from UN forecasts released in January this year. This marks a notable acceleration compared to just 2.3% in 2016. The report identifies a tentative recovery in world industrial production, along with reviving global trade, driven primarily by rising import demand from East Asia. Assistant secretary-general for Economic Development in the UN Department of Economic and Social Affairs Lenni Montiel underscored the “need to reinvigorate global commitments to international policy coordination to achieve a balanced and sustained revival of global growth, ensuring that no regions are left behind."
According to the report, underpinning global economic recovery is firmer growth in many developed economies and economies in transition, with East and South Asia remaining the world’s most dynamic regions, benefiting from robust domestic demand and supportive macroeconomic policies. It said more efforts are needed to foster an environment that will accelerate medium term growth and tackle poverty through policies that address inequalities in income and opportunity.
The report points to a combination of short-term policies to support consumption among the most deprived and longer-term policies such as improving access to healthcare and education and investment in rural infrastructure. The report states that inflation dynamics in developed economies have reached a turning point, and risks of prolonged deflation have largely dissipated. By contrast, inflationary pressures have eased in many large emerging markets, allowing interest rates to come down.
It further stresses heightened uncertainty over international policy, which will hinder a strong rebound in private investment globally. Corporate sectors in many emerging economies are vulnerable to sudden changes in financial conditions and destabilizing capital outflows, which could be triggered by faster- than-expected interest rate hikes in the US.
Looking ahead, the report advocates for renewed global commitments to deeper international policy coordination in key areas, including aligning the multilateral trading system with the 2030 Agenda for Sustainable Development; expanding official development aid; supporting climate finance and clean technology transfer; and addressing the challenges posed by large movements of refugees and migrants.