IMF pares down India's growth to 4.9 percent

The International Monetary Fund (IMF) has revised India's growth forecast down to 4.9 percent in 2012,  rising to 6 percent next year, as it presented a gloomier picture of the global economy.

Saying prospects have deteriorated further and risks increased since July, the IMF's latest World economic Outlook, unveiled in Tokyo Tuesday ahead of the IMF-World Bank 2012 Annual Meetings, pegged global growth down to 3.3 percent this year and a still sluggish 3.6 percent in 2013.

The outlook for India is unusually uncertain: for 2012, with weak growth in the first half and a continued investment slowdown, real GDP growth is projected to 4.9 percent compared with 6.8 percent in 2011, and 1.3 percentage points less than 6.2 percent forecast in the July WEO.

But improvements in external conditions and confidence-helped by a variety of reforms announced very recently-are projected to raise real GDP growth to about 6 percent in 2013, still 0.6 percentage points lower than that forecast then.

In developing Asia as a whole, real GDP growth will average 6.7 percent in 2012 and is forecast to accelerate to a 7.25 percent pace in the second half of 2012. The main driver will be China, where activity is expected to receive a boost from accelerated approval of public infrastructure projects, the IMF said.

The advanced economies are projected to grow by 1.3 percent this year, compared with 1.6 percent last year and 3.0 percent in 2010, with public spending cutbacks and the still-weak financial system weighing on prospects.

Growth in emerging market and developing economies was marked down compared with forecasts in July and April to 5.3 percent, against 6.2 percent last year.

Leading emerging markets such as China, India, Russia, and Brazil will all see slower growth. Growth in the volume of world trade is projected to slump to 3.2 percent this year from 5.8 percent last year and 12.6 percent in 2010, the WEO said.

"Low growth and uncertainty in advanced economies are affecting emerging market and developing economies through both trade and financial channels, adding to homegrown weaknesses," said IMF Chief Economist Olivier Blanchard.

The IMF said that its forecast rested on two crucial policy assumptions-that European policymakers get the euro area crisis under control and that policymakers in the United States take action of tackle the "fiscal cliff" and do not allow automatic tax increases and spending cuts to take effect.  Failure to act on either issue would make growth prospects far worse.

In the United States, growth will average 2.2 percent this year. Real GDP is projected to expand by about 1.50 percent during the second half of 2012, rising to 2.75 percent later in 2013.

Weak household balance sheets and confidence, relatively tight financial conditions, and continued fiscal consolidation stand in the way of stronger growth, the WEO said.
(Arun Kumar can be contacted at [e-mail])