IMF pegs India growth rate forecast at 6%

Unless lending rates come off, growth of 5.6 per cent unlikely

The International Monetary Fund (IMF) has lowered its forecast for global economic growth to 3.3 per cent this year and 3.6 per cent in 2013 from earlier forecasts of 3.4 per cent and 3.9 per cent respectively.

Chinese growth for 2013 is seen at 8.2 per cent, against an earlier IMF estimate of 8.4 per cent, Indian growth is seen at 6 per cent versus a previous forecast of 6.6 per cent and Brazilian growth at 4 per cent versus 4.7 per cent, Reuters quoted German daily Handelsblatt as saying.

The IMF expects the euro zone economy to shrink 0.4 per cent this year and then grow 0.2 per cent in 2013, the daily reportedly said in a preview of the fund’s latest forecasts which are due to be released next week. “The further cooling of global economic growth this year and next year is accompanied by a significant increase in downward risks,” it quoted the IMF as saying and added that the global growth outlook depended on “whether decisive political steps to stabilise confidence are taken in the euro zone and US.”

However, Bank of America Merrill Lynch (BofA-ML) in its report said the worst is over for the Indian economy but it will be another six months before the country shows signs of improvement and growth recovers to 6.5 per cent level.

According to BofA-ML, lead indicators still point to six months of pain and it is not until the March quarter that growth is expected to recover to 6.5 per cent levels.“We grow more confident of our call that while the worst is over, recovery will stretch for another 6 months,” the report said.

A turn-around in loan demand is critical for recovery and high lending rates are still pulling down credit, the report said.

“High lending rates, are still pulling down credit, our other key lead indicator. Unless lending rates come off, fiscal year 2013 growth will likely find it difficult to do our 5.6 per cent forecast, let alone the RBI’s 6.5 per cent,” BofA Merrill Lynch said.

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