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IMF cuts India 2012 growth forecast to 4.9 per cent

BT Online Bureau     October 9, 2012
Presenting a gloomier picture for Indian economy, the International Monetary Fund on Tuesday lowered India's growth projection for this year and 2013 to 4.9 per cent. India's economic growth is expected to weaken on domestic structural sluggishness amid a worsening situation in global economy.

Earlier, on Oct 5, IMF has cut its global growth forecasts for this year and 2013 and called on politicians in the eurozone and the US to take "decisive" steps to restore confidence.

Saying prospects have deteriorated further and risks increased since July, the IMF's latest World economic Outlook, unveiled in Tokyo on Tuesday ahead of the IMF-World Bank 2012 Annual Meetings, pegged global growth down to 3.3 per cent this year and a still sluggish 3.6 per cent 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 per cent compared with 6.8 per cent in 2011, and 1.3 percentage points less than 6.2 per cent 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 per cent 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 per cent in 2012 and is forecast to accelerate to a 7.25 per cent 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 per cent this year, compared with 1.6 per cent last year and 3.0 per cent 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 per cent, against 6.2 per cent 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 per cent this year from 5.8 per cent last year and 12.6 per cent 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 per cent this year. Real GDP is projected to expand by about 1.50 per cent during the second half of 2012, rising to 2.75 per cent 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.

Asian Development Bank (ADB) has lowered India's growth forecast for the current financial year to 5.6 per cent, from 7 per cent projected earlier, citing falling global demand and impact of delayed monsoon on agricultural production.

The Asian Development Outlook 2012 Update, however, adds that India can reverse the trend of falling growth by promoting economic reforms and taking steps to improve investment climate.

Rating agency Fitch on Septemebr 28 lowered India's growth projection for the current financial year to 6 per cent from 6.5 per cent estimated earlier , citing challenging economic outlook.

With agency inputs

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