Reflecting India’s recent economic difficulties, the International Monetary Fund has slashed the country’s growth projection for 2013 to 3.8 per cent – down from 5.6 per cent forecast just three months ago.
For 2014, as well, the IMF does not envisage any grand revival, but a rather modest improvement of the growth profile to 5.1 per cent, which is still 1.1 per cent lower than what it predicted in July.
Setting out the figures in its new World Economic Outlook report, released here on Tuesday, the IMF makes a strong pitch for “a new round of structural reforms” in many emerging economies.
The report points to India’s “infrastructural and regulatory bottlenecks”, as is the case with Brazil, noting these snags have slowed output supply in the face of still-strong domestic demand.
In terms of monetary policy response, the IMF says several economies, including India, may well need more tightening to address continued inflation pressure from capacity constraints that would likely be reinforced by the recent currency depreciation.
On the global plane, the report, released ahead of the IMF-World Bank annual meetings here later this week, notes that world growth remains in low gear, with downside risks persisting. World growth for 2013 is now put at 2.9 per cent, down by 0.3 per cent from the July update.
Even as global growth remains in low gear, the report makes the point that “the drivers of activity are changing”, noting that a growing number of emerging economies, including China, are “coming off cyclical peaks”.
The IMF has also voiced its concern over the ongoing US political gridlock, leading to a partial Government shutdown and putting a question mark over raising the country’s debt limit.
“A failure to promptly raise the debt ceiling, leading to a US selective default, could seriously damage the global economy,” the report warns.
“Emerging market and developing economies are facing new policy challenges,” says the IMF at a time when the projected end of US quantitative easing could come with a greater and longer-lasting tightening of global financial conditions than is presently expected.
Outlining the weaker medium-term prospects for emerging market economies, the report points out that “projections for 2016 real GDP levels for Brazil, China and India have been successively reduced by some 8 to 14 per cent over the past two years”.While the specific reasons for lower growth in the various emerging economies differ, the report reckons that “cyclical and structural factors are at play”.