The IMF on Tuesday slightly trimmed India’s growth projections to 7.4 per cent for 2016 and 2017, a drop of 0.1 per cent from its previous forecast, attributing it to a more sluggish investment recovery while declaring Brexit as a “spanner” in the global economic recovery.
The global lending agency also said that Brexit has resulted in global economic uncertainty.
“The outcome of the UK vote, which surprised global financial markets, implies the materialisation of an important downside risk for the world economy. As a result, the global outlook for 2016-17 has worsened, despite the better-than- expected performance in early 2016,” the IMF said in its latest update if the World Economic Outlook.
Updating its growth projection from the one it issued in April 2017, the IMF said in 2016 and 2017 India is projected to grow at a rate of 7. 4 per cent. This it said is a drop of 0.1 per cent in both the years.
“In India, economic activity remains buoyant, but the growth forecast for 2016-17 was trimmed slightly, reflecting a more sluggish investment recovery,” the IMF said.
In 2015, the Indian economy grew at 7.6 per cent.
Maury Obstfeld IMF Economic Counsellor and Director of the Research Department said the UK’s June 23 vote to leave the 28-nation European Union adds downward pressure to the world economy at a time when growth has been slow amid an array of remaining downside risks.
“The first half of 2016 revealed some promising signs – for example, stronger than expected growth in the euro area and Japan, as well as a partial recovery in commodity prices that helped several emerging and developing economies.
“As of June 22, we were therefore prepared to upgrade our 2016-17 global growth projections slightly. But Brexit has thrown a spanner in the works,” Obstfeld said.
The April outlook was for 3.2 per cent global output growth in 2016 and 3.5 per cent in 2017.
“For today’s update, we have reduced both of those projections by 0.1 percentage point, to 3.1 and 3.4 per cent, respectively,” she said.
According to IMF, China’s growth rate in 2016 and 2017 would be 6.6 and 6.2 per cent. The growth rate projection for China in 2016 is 0.1 per cent more than the one announced in April.
“Brexit-related revisions are concentrated in advanced European economies, with a relatively muted impact elsewhere, including in the United States and China,” the IMF said.
Indicators of real activity were somewhat stronger than expected in China, reflecting policy stimulus, as well as in Brazil and Russia, with some tentative signs of moderation in Brazil’s deep downturn and stabilisation in Russia following the rebound in oil prices, is said.
While global industrial activity and trade have been lacklustre amid China’s rebalancing and generally weak investment in commodity exporters, recent months have seen some pick-up due to stronger infrastructure investment in China and higher oil prices, it said.
According to the IMF, in China, the near-term outlook has improved due to recent policy support.
Benchmark lending rates were cut five times in 2015, fiscal policy turned expansionary in the second half of the year, infrastructure spending picked up, and credit growth accelerated.
“The direct impact of the UK referendum will likely be limited, in light of China’s low trade and financial exposure to the United Kingdom as well as the authorities’ readiness to respond to achieve their growth target range,” the IMF said.
“Hence, China’s growth outlook is broadly unchanged relative to April (with a slight upward revision for 2016). However, should growth in the European Union be affected significantly, the adverse effect on China could be material,” IMF said.
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