In its update to World Economic Outlook, IMF says India's growth will pick up due to post elections recovery offsetting effect of weak monsoon on agriculture
New Delhi: The International Monetary Fund (IMF) has stuck to its 5.4% economic growth forecast for India in 2014-15 while reducing its growth projections for the world and most developing countries.
In its update to the World Economic Outlook released in April, the IMF said on Thursday that in India, growth appears to have bottomed out, and “activity is projected to pick up gradually after the post-election recovery in business sentiment, offsetting the effect of an unfavourable monsoon on agricultural growth."
In 2015-16, it has projected India’s economy to grow 6.4%, the same as its April forecast.
The Economic Survey released by the finance ministry earlier this month projected that the Indian economy would expand between 5.4% and 5.9% in the year to 31 March after growth slowed to sub-5% levels for two consecutive years.
Growth will most likely be close to its lower range of 5.4% in the current fiscal year, and economic expansion in the range of 7-8% is possible only beyond the current and the next fiscal years, the survey said.
A slow rebound in the investment cycle, benign growth outlook for China, elevated inflation, and below-normal monsoon rain were risks to growth in the near term, it said.
The IMF said the world economy will expand 3.4% in 2014, less than its 3.6% prediction in April but still stronger than last year’s 3.2%. Next year’s growth will be 4%, compared with an April forecast of 3.9%, the fund said.
Global growth could be weaker for longer, given the lack of robust momentum in advanced economies even as interest rates stay low, it said.
The IMF report reflects a world rattled by geopolitical risks that have risen since April, including the potential for sharply higher oil prices because of recent unrest in the Middle East.
Growth in emerging markets is projected to be 4.6% this year, compared with an April forecast of 4.9%, the IMF said.
China’s economy is seen growing 7.4% this year, less than the 7.5% forecast in April, the IMF said. Next year, growth in the world’s second-largest economy will slow further, to 7.1%, the Washington-based fund said, less than its forecast in April for 7.3% growth.
Most of the downgrade for this year in developed economies was due to the US growth forecast being cut by the IMF to 1.7% from an April prediction of 2.8% because of a first-quarter contraction.
The forecast for 2015 was unchanged at 3%. The IMF issued its US forecasts on Wednesday.
In prepared remarks, IMF chief economist Olivier Blanchard said the US economy is forecast to grow 3% to 3.25% for the rest of the year. He indicated the fund agrees with Federal Reserve plans to wind down stimulus spending.
The current plans, namely the end of tapering later this year and increases in the policy rate from the middle of next year, are appropriate, Blanchard said. But the timing of the increase in the policy rate may have to be adjusted.
Blanchard also addressed concerns about the potential for excessive risk taking associated with extended periods of low interest rates.
“We agree that, in some financial markets, valuations appear perhaps optimistic," Blanchard said. “But, overall, we do not see a systemic threat to financial stability, mainly because of lower leverage in both banks and, to the extent we can measure it, in non banks as well."
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