The International Monetary Fund (IMF) on Monday kept its growth projection for India unchanged at 6.7% for the current fiscal, despite the Central Statistics Organisation recently estimating the country’s economic expansion at a four-year low of 6.5%. India will again emerge as the world’s fastest-growing major economy, at least for the next two years, the IMF said.
The International Monetary Fund (IMF) on Monday kept its growth projection for India unchanged at 6.7% for the current fiscal, despite the Central Statistics Organisation recently estimating the country’s economic expansion at a four-year low of 6.5%. India will again emerge as the world’s fastest-growing major economy, at least for the next two years, the IMF said. India’s growth will rise steadily to 7.4% in 2018-19 and 7.8% in the year after, the multilateral body said in its latest forecast. However, China’s expansion will slow down to 6.6% and 6.4% in 2018 and 2019, respectively, against 6.8% in 2017. The IMF raised the global growth projections by 20 basis points each to 3.9% for both 2018 and 2019, partly driven by high-than-expected expansion of the US economy following a cut in corporate taxes by the Trump administration. “The US tax policy changes are expected to stimulate activity, with the short-term impact in the US mostly driven by the investment response to the corporate income tax cuts,” the IMF said in its latest World Economic Outlook Update. However, due to the temporary nature of some of its provisions, the tax policy package is projected to lower growth for a few years from 2022 onwards, it added. The effects of the package on output in the US and its trading partners contribute about half of the cumulative revision to global growth over 2018–19.
The US recently announced the biggest tax cuts in 30 years, bringing the corporate tax rate down from 35% to 21%. Lower corporate tax and likely interest rate hikes by the Federal Reserve could draw investors from all over the world to the US. The IMF has revised up the prediction for the US by 40 basis points to 2.7% for 2018, against 2.3% last year. It has raised its projection for the EU by 30 basis points to 2.2% for 2018. The current cyclical upswing in global growth offers an ideal opportunity for structural reforms. On the upside, the cyclical rebound could prove stronger in the near term as the pickup in activity and easier financial conditions reinforce each other, the multilateral body said.
“On the downside, rich asset valuations and very compressed term premiums raise the possibility of a financial market correction, which could dampen growth and confidence.” A possible trigger is a faster-than-expected increase in advanced economy core inflation and interest rates as demand accelerates. If global sentiment remains strong and inflation muted, then financial conditions could remain loose into the medium term, leading to a buildup of financial vulnerabilities in advanced and emerging market economies alike. The IMF has also raised its forecast for global trade (both goods and services) by 60 basis points for 2018 and 40 basis points for 2019 from earlier projections. This, along with higher-than-expected growth rates for key markets like the US and the EU, should help India, which is struggling to achieve high and sustained growth in merchandise exports in recent years. The IMF also predicted consumer price inflation in India to inch up 10 basis points to 4.5% in 2018 in emerging and developing markets, against 4.1% in 2017, before settling at 4.3% in 2019.