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    IMF cuts India’s growth forecast to 7% for FY20 

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    IMF cuts India’s growth forecast to 7% for FY20 

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    The International Monetary Fund (IMF) has cut India’s growth forecast by three-tenths of a percent for both the current and the next financial year, its latest World Economic Outlook Report for July showed.

    The International Monetary Fund (IMF) has cut India’s growth forecast by three-tenths of a percent for both the current and the next financial year, its latest World Economic Outlook Report for July showed.
    IMF sees the Indian economy growing by 7 percent in FY20 compared to 6.8 percent growth the previous year, and then rising to 7.2 percent in FY21, lower than its April forecast of 7.3 percent and 7.5 percent respectively for FY20 and FY21.
    The report noted: “The downward revision of 0.3 percentage point for both years reflects a weaker-than-expected outlook for domestic demand.” The fund added that some central banks, including the Reserve Bank of India, have also turned dovish or communicated a more cautious view on the outlook.
    The Economic Survey report 2018-19 has also projected India’s FY20 economic growth rate at 7 percent, supported by stable macroeconomic conditions. “The average GDP growth for India was at 7.5 per cent for the last five years,” the survey pointed out. India needs to grow at 8 per cent per annum to become a $5 trillion economy by FY25, it said.
    The Reserve Bank of India’s Monetary Policy Committee also revised its GDP growth projection for FY20 lower from 7.2 percent to 7 percent in its June policy, noting signs of weakening domestic investment activity as reflected in a slowdown in production and imports of capital goods.
    The July update for the World Economic Outlook has also revised downwards global growth projection to 3.2 percent in 2019 and 3.5 percent in 2020. IMF’s Economic Counsellor and Director of the Research Department Gita Gopinath, said, “While this is a modest revision of 0.1 percentage points for both years relative to our projections in April, it comes on top of previous significant downward revisions,” adding that “the revision for 2019 reflects negative surprises for growth in emerging market and developing economies that offset positive surprises in some advanced economies.”
    IMF in its report says the global growth is projected to improve between 2019 and 2020. However, close to 70 percent of the increase relies on an improvement in the growth performance in stressed emerging market and developing economies and is therefore subject to high uncertainty.
    Among advanced economies — the United States, Japan, the United Kingdom, and the euro area —grew faster than expected in the first quarter of 2019. The growth projection for advanced economies, which was raised in the first quarter as well, has again been revised upwards by 0.1 percentage point, to 1.9 percent for 2019. The report notes that going forward, growth is projected to slow to 1.7 percent, as the effects of fiscal stimulus taper off in the United States and weak productivity growth and aging demographics dampen long-run prospects for advanced economies.
    For the emerging market and developing economies, IMF has revised growth forecast down by 0.3 percentage points in 2019 to 4.1 percent and by 0.1 percentage points for 2020 to 4.7 percent. The WEO July report notes that in China, the slight revision downwards reflects, in part, the higher tariffs imposed by the United States in May 2019, while the more significant revisions in India and Brazil reflect weaker-than-expected domestic demand.
    However, the report says, there are increased downside risks to global growth. Gopinath in her comments said, “A major downside risk to the outlook remains an escalation of trade and technology tensions that can significantly disrupt global supply chains. The combined effect of tariffs imposed last year and potential tariffs envisaged in May between the United States and China could reduce the level of global GDP in 2020 by 0.5 percent. Further, a surprise and durable worsening of financial sentiment can expose financial vulnerabilities built up over years of low interest rates, while disinflationary pressures can lead to difficulties in debt servicing for borrowers. Other significant risks include a surprise slowdown in China, the lack of a recovery in the euro area, a no-deal Brexit, and escalation of geopolitical tensions.”
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