IMF cuts India growth forecast for 2019 to 4.8%

In its biggest markdown for any emerging economy this year, the International Monetary Fund (IMF) Monday sharply cut India's growth forecast to 4.8% in 2019 amid stress in the non-bank financial sector, a slowdown in domestic demand and a decline in loan growth.

Not only that, the IMF also cut the 2020 economic growth forecast by a steep 1.2 percentage points to 5.8% from its earlier estimate.

Only in October, the IMF had projected India's economy to grow at 6.1% and rebound to 7% in 2020.

On the contrary, it raised China's GDP growth forecast to 6% in 2020 from its October projection of 5.8%. The projection for China comes after the country last week confirmed that it had grown 6.1% in 2019, its lowest in 29 years.

“The growth markdown largely reflects a downward revision to India’s projection, where domestic demand has slowed more sharply than expected amid stress in the non-bank financial sector and a decline in credit growth.

“India’s growth is estimated at 4.8% in 2019, projected to improve to 5.8% in 2020 and 6.5% in 2021, supported by the monetary and fiscal stimulus as well as subdued oil prices,” the IMF said.

Among other emerging markets, Chile and Mexico saw their growth estimates downgraded marginally.

But there was an upward revision to the 2020 forecast for Brazil, owing to improved sentiment following the passage of pension reform and the fading of supply disruptions in the mining sector.

It also warned that the rising geopolitical tensions, notably between the United States and Iran, could disrupt global oil supply, hurt sentiment, and weaken already a tentative business investment.

It flagged concerns over higher tariff barriers between the United States and its trading partners, notably China, that has hurt business sentiment and compounded cyclical and structural slowdowns in many economies over the past year.

“The disputes have extended to technology, imperilling global supply chains. The rationale for protectionist acts has expanded to include national security or currency grounds.

Prospects for a durable resolution to trade and technology tensions remain elusive, despite sporadic favourable news on ongoing negotiations,” the IMF said and warned a further deterioration in economic relations between the US and its trading partners could undermine the nascent bottoming out of global manufacturing and trade.