International Monetary Fund trims global growth forecast for 2019 on India slowdown

Kristalina Georgieva

In the latest update to the World Economic Outlook, the International Monetary Fund 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.

Monday's downgrades were driven by a downward revision of India's economy and increased social unrest around the world previous year.

While the Indian government's statistics department and the Reserve Bank of India (RBI) have estimated growth in 2019-20 at 5%, rating agency Moody's Investors Service has projected growth at 4.9% for the fiscal.

India's GDP growth in the July-September quarter of 2019 slowed sharply to 4.5 per cent, the weakest pace in more than six years, as manufacturing output hit a slump and consumer demand as well as private investment weakened.

The US is forecast to grow 2.0 percent this year.

The downward revision primarily reflects negative surprises to economic activity in a few emerging market economies, notably India, which led to a reassessment of growth prospects over the next two years.

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She brought up a new study in which the International Monetary Fund set out China's positive experience in expanding access to the financial sector there helped arrive at "enormous economic gains in the 2000s", contending this helped scores of people to battle poverty.

"However, few signs of turning points are yet visible in global macroeconomic data", it noted.

The slight downward revision of 0.1 per cent for two years and 0.2 per cent for the year after that in the global growth is largely due to downward revision for India estimates, she said.

There were 71 rate cuts by about 40 countries and these contributed 0.5 per cent to the global growth estimate "or else we would have been talking of a recession", she said. That's up 0.4 percentage point from past year, but down 0.1 point from its previous forecast in October. "An important reason for this is the stress in the financial sector, particularly in the non-bank financial sector, because of which there has bee a sharp slowing of credit growth". Closer cross-border cooperation is needed in multiple areas, to address grievances with the rules-based trading system, curb greenhouse gas emissions, and strengthen the global tax architecture. A more subdued growth forecast for India (discussed below) accounts for the lion's share of the downward revisions.

IMF's Chief Economist Gita Gopinath said some risks have partially receded since October with developments on US-China trade deal.

According to Gopinath, further trade tensions "alongside rising geopolitical risks and intensifying social unrest could reverse easy financing conditions, expose financial vulnerabilities, and severely disrupt growth".

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