International Monetary Fund predicts India will grow at 7.3% in 2018-’19

PM Imran Khan chairing the Punjab cabinet meeting. — PTI

PM Imran Khan chairing the Punjab cabinet meeting. — PTI

The International Monetary Fund (IMF) on Monday retained economic growth projection for India at 7.3 per cent for 2018-19 (FY19), lower than the government's and the Reserve Bank of India's (RBI's) forecasts.

"India's growth is expected to increase to 7.3 per cent in 2018 and to 7.4 per cent in 2019 (slightly lower than in the April 2018 World Economic Outlook (WEO) for 2019, given the recent increase in oil prices and the tightening of global financial conditions), up from 6.7 per cent in 2017", the International Monetary Fund said in its latest World Economic Outlook report. Bond markets were closed, leading USA indexes to a mixed finish after a day of light trading. But it predicts that USA growth will slow to 2.5 percent next year as the effect of recent tax cuts wears off and as President Donald Trump's trade war with China takes a toll.

If projections are true, then India would regain the tag of fastest growing major economies of the world, crossing China with more than 0.7 percentage point in 2018 and an impressive 1.2 percentage point growth lead in 2019.

The fund, in its latest World Economic Outlook report, said the country needed to implement reforms to improve policy certainty and the efficiency of state-owned companies. For FY20, the Chinese economic growth rate was cut by 0.2 percentage points to 6.2 per cent.

"The global economic recovery has been uneven and inequality has risen, fuelling inward-looking policies and contributing to increased policy uncertainty".

The dominant U.S. economy has been shielded from the ill effects so far due to the stimulus provided through tax cuts and spending policies, but that will wear off by 2020.

China is trying to move away from its long-time reliance on heavy industry and manufactured exports towards a growth model based more on domestic consumption by its increasingly wealthy populace.

It said the lack of progress in UK/EU discussions had created "pervasive uncertainty" about future trade costs.

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Among major USA trading partners, Japan and the European Union have won exemptions from the planned US auto tariffs while respective trade negotiations with Washington are underway.

"Japan's medium-term prospects are impeded by unfavorable demographics and a trend decline in the labor force", the report said.

The eurozone's 2018 growth forecast was cut to 2.0 percent from 2.2 percent previously, with Germany particularly hard hit by a drop in manufacturing orders and trade volumes.

The revised estimates includes a worsening outlook for developing economies this year and next compared to the July report, as well as downgrades for the United States and China in 2019.

"Healthy consumer spending and job creation amid supportive monetary policy are expected to continue to provide strong aggregate demand, though at a moderating pace", according to the report.

The Federal Reserve, the US central bank, has raised short-term USA rates three times this year as the American economy gains strength more than nine years after the end of the Great Recession.

It said that a full-blown trade war between the USA and China would put a significant dent in economic recovery.

Russian Federation was among the few energy-rich emerging market countries whose growth forecasts were bumped up.

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