The latest World Economic Outlook Report from the International Monetary Fund (IMF) forecasts significant growth for India’s economy, showing a positive global trend despite a slight dip in the global growth rate due to various factors. This report provides key insights into international economic progression and offers a comprehensive overview of where key economies stand in terms of growth.
Growth Projections by IMF
The IMF predicts a growth rate of 7.3% for India in 2018 and 7.4% in 2019. Globally, the growth estimate stands at 3.7% for 2018-19, which is a 0.2% decrease from the GDP growth forecast made in April 2018. This slump in estimated growth rates for advanced economies is primarily due to slower expansion in working-age populations and unimpressive projected productivity gains.
Trade Tensions and the Potential Impact
The potential shift away from a multilateral, rules-based trading system and escalating trade tensions are identified as significant threats to global growth. An escalation in trade tensions could negatively impact business and financial market sentiment, induce financial market volatility, and hinder investment and trade. The introduction of higher trade barriers could potentially disrupt global supply chains, slow the dissemination of new technologies, reduce global productivity and welfare, and make tradable consumer goods less affordable.
Growth Outlook for the United States, European Union, and Emerging Markets
While the United States maintains a strong growth momentum, predictions for 2019 have been revised downward due to recent trade measures. Growth projections for the Euro area and the United Kingdom have also been adjusted downwards. For emerging markets and developing economies, higher oil prices have improved growth prospects for many oil-exporting countries. However, due to country-specific circumstances, geopolitical tensions, and higher oil import bills, the growth rate for countries like Argentina, Brazil, Iran, and Turkey has been revised downward.
Forecast for India
India is expected to be the fastest-growing major economy worldwide, overtaking China in 2019. The country has successfully rebounded from short-term shocks, such as the demonetization and implementation of the national Goods and Services Tax (GST), with strengthening investment and robust private consumption. Several important reforms, like the Goods and Services Tax, the inflation-targeting framework, the Insolvency and Bankruptcy Code, and steps to liberalize foreign investment and ease business practices have been put into place.
Recommendations for Growth
The IMF report recommends specific measures for India and other countries to increase their growth. For India, these include resolving the Non-Performing Assets (NPAs) crisis, reviving bank credit, reducing subsidies, and enhancing compliance with GST. To boost international growth, countries should cooperate to reduce trade costs and resolve disagreements without raising trade barriers.
Inflation Targeting
Monetary policy accommodation should be made where inflation is weak or robust, but cautionary normalization should be used where inflation is close to target. Fiscal policies ought to build buffers and prepare economies for potential future crises.
Advanced Economies: Special Recommendations
In countries nearing full employment with excess current account deficit and unsustainable fiscal position, such as the United States, public debt needs to be stabilized and eventually reduced. Countries with both excess current account surpluses and fiscal space, like Germany, should increase public investment to stimulate potential growth and reduce external imbalances.
Recommendations for Emerging Market Economies
Emerging Market Economies (EME) should improve the tradeoff between inflation and output using credible monetary policy frameworks. Low-income developing countries, on the other hand, need to make decisive progress in strengthening their fiscal positions while targeting well-executed measures to reduce poverty. These steps will foster greater economic security and improve living standards, helping them achieve the United Nations’ Sustainable Development Goals by 2030.
