Investment and exports will let the Indian economy post a rather smart recovery, the International Monetary Fund said in its latest World Economic Outlook report on Tuesday, predicting an expansion of 5.6% in 2014 and a significantly higher 6.4% in 2015. It also advised India to embark on ?the much-needed structural reforms?.
Close on the heels of the World Bank paring its 2014-2016 growth forecasts of the East Asia and Pacific economies, the fund noted China?s growth picked up in the second quarter, aided by a recent ?mini stimulus?. It retained its growth projections (made in July) of 7.4% and 7.1% for the world?s second largest economy for 2014 and 2015, respectively.
The annual meetings of both the agencies are scheduled for later in the week.
The IMF sees the US growing at 2.2% in 2014, the same rate as in the previous year and a substantial upward revision of 0.5 percentage point from its July forecast. Despite this and small upward revisions in the growth in India (0.2 percentage point) and Canada (0.1 point), it cut world growth in 2014 to 3.3% from 3.4% and that in 2015 to 3.8% (4%). World growth was lowered on the drag expected from the euro area ? growing 0.8% in 2014 and 1.3% in 2015 ? which only ?continued to overcome the legacies of the crisis?, and the negative effects on demand of the consumption tax increase on Japan?s economy (which is now expected to grow 0.9% in 2014 and 0.8% in 2015).
The IMF said global growth is ?uneven and still weak
overall? and remained susceptible to many downside risks, including ongoing geopolitical tensions in Iraq and Ukraine (which have had limited broader spillovers so far) and domestic demand remaining weak in a few major economies, notably in Latin America. Advanced economies, the IMF said, are expected to continue a slow recovery, with growth rising to 1.8% in 2014 and to 2.3% in 2015 while the rate of economic expansion in emerging market and developing economies will slow to 4.4% in 2014, before rising to 5% in 2015.
While praising India for ?successfully? lowering the vulnerabilities to adverse shocks by adopting tight macroeconomic policies to reduce inflation and narrow the current account deficit, the IMF said ?the post-election recovery of confidence in India also provides an opportunity for that country to embark on its much-needed structural reforms?.
The IMF’s new forecast for India is in line with the Reserve Bank of India’s recent GDP growth estimate of 5.5% for 2014-15 and 6.3% in 2015-16, and the finance ministry’s latest estimate of 5.7-5.9% for this fiscal. Prime Minister Narendra Modi has expressed confidence of returning to high growth of
7-8% in the next three years through a series of steps including the ?Make in India? initiative and accelerating reforms, although high interest rates continue to be a dampener and prevents consumption-led demand from increasing. ?In India, growth is expected to increase in the rest of 2014 and 2015, as exports and investment continue to pick up and more than offset the effect of an unfavourable monsoon on agricultural growth earlier in the year,? the IMF said.
A piece of good news for India, which is big importer of oil, is that oil prices are expected to fall by 1.3% this year and 3.3% next year, which would have a salutary impact on inflation.