The International Monetary Fund (IMF) on Monday cut India?s growth forecast for 2012 sharply to 4.9% from 6.1% estimated in July and 6.8% in April, owing to ?continued investment slowdown? and further deterioration in the global economy since the previous estimate.
It also issued the dire warning that unless European and US policymakers deal proactively with their daunting economic challenges, the outlook could worsen.
The fund said India?s growth could rebound to 6% in 2013 on the back of recent reform measures coupled with ?improvement in the external conditions?. Pertinently, in its July outlook, the fund had estimated India?s growth in 2013 higher at 6.6%.
In the World Economic Outlook report, the IMF cut its outlook for the world economy to 3.3% (3.5% in July) in 2012. Wondering whether emerging economies would maintain their strong expansion while shifting further to domestic sources of growth, it cut growth outlook for them too, to 5.3% from 5.6%.
As for advanced economies, where fiscal consolidation efforts are on course, the IMF saw real GDP growth at 1.3% in 2012 against 1.4% previously estimated.
?The outlook for India is unusually uncertain,? IMF said while paring the growth projection by a whopping 1.3 percentage points for 2012 and another 0.6 percentage point for 2013. “India’s activity suffered from waning business confidence amid slow approvals for new projects, sluggish structural reforms, policy rate hikes designed to rein in inflation, and flagging external demand,” the IMF said.
The IMF’s forecast contrasts sharply with the finance ministry’s budget estimate of 7.6% GDP growth for 2011-12 and the Reserve Bank of India’s projection of 6.5% but comes closer to Standard & Poor’s forecast of 5.5% and Morgan Stanley’s 5.1%.
Finance minister P Chidambaram on Monday sought to take heart from the fact India’s growth rate was almost “double” the pace of global expansion and “four times” that of advanced nations. He also expressed confidence that recent reform measures and those on the anvil would help take the investment rate closer to the pre-crisis level (38-39% of GDP) and the ratchet up growth close to 9% in due course.
The IMF had in its July outlook said emerging market nations which remained the bright spots in the dismal global economic landscape too were being dragged down by the economic turmoil in Europe.
Global growth has taken a hit as the world largest economy, the US, is expected to expand by 2.2% while economies in the euro area may contract by 0.4% during 2012. While the European Union is likely to jump back to positive albeit measly growth of 0.2% in 2013, it will be somewhat down to 2.1% in US.
Commenting on the global economy, the fund said a key issue was whether it was just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the current slowdown has a more lasting component. “The answer depends on whether European and US policymakers deal proactively with their major short-term economic challenges,” the IMF said, expressing concern over the medium-term prospects amid huge government debt levels and uncertainty over sustainability of growth momentum by emerging market economies.
The global growth conditions deteriorated further after a sharp slowdown in emerging economies like China and India. Among the BRIC grouping, India’s growth outlook has been lowered the most.
Apart from India, the growth rate has slowed in other major emerging economies ? China’s GDP growth is likely to slow to 7.8% from 9.2%, and it will moderate to 1.5% from 2.7% in Brazil, and 3.7% from 4.3% in Russia.
