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IMF slashes India’s 2009 growth to 6.3%
Its estimate for India’s growth in 2009 is now 6.3%, 0.6 percentage points lower than its earlier estimate of 6.9% made just a month ago
Christopher Swann / Bloomberg
Washington: The International Monetary Fund, or IMF, predicted lower growth in India and economic contractions in the US, Japan and euro region next year, calling for further interest rate cuts and fiscal stimulus.
Its estimate for India’s growth in 2009 is now 6.3%, 0.6 percentage points lower than its earlier estimate of 6.9% made just a month ago. And its estimate for the country’s growth in 2008 is down 0.1 percentage points to 7.8%.
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An economist said India could grow faster than IMF’s estimate. “Growth next year will definitely be slower than this year, but it may still touch 7%. New oil refineries coming up next year will also boost GDP (gross domestic product). I agree with IMF that growth momentum will slow further, but it may pick up towards the end of next year,” said Dharmakirti Joshi, principal economist with credit rating agency Crisil Ltd. Joshi’s estimate of growth this year is 7.5%.
“Markets have entered a vicious cycle of asset de-leveraging, price declines and investor redemptions,” IMF said in an update to its World Economic Outlook report, released in Washington on Thursday. “Global action to support financial markets and provide further fiscal stimulus and monetary easing can help limit the decline in world growth.”
The revisions reflect a further choking-off of credit to companies and businesses in the past month. The Bank of England on Thursday declared the most serious banking “disruption” in almost a century, cutting its benchmark interest rate to the lowest level since 1955.
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US gross domestic product will contract 0.7%, Japan’s will shrink 0.2% and the euro area’s 0.5% in 2009, IMF said on Thursday in Washington. The fund last month foresaw 0.1% US growth, with expansions of 0.5% in Japan and 0.2% in the euro zone.
Global growth will be 2.2% next year, down from 3.7% this year, IMF said. The fund said in its semiannual World Economic Outlook report on 7 October that world GDP would rise 3% in 2009. As recently as July, IMF economists expected a 3.9% expansion.
IMF has said that a growth rate of 3% or less is “equivalent to a global recession”.
Growth in the US “will suffer as households respond to depreciating real and financial assets and tightening financial conditions,” IMF said. In Japan, “growth from net exports is expected to decline”. The 15-nation euro region will be “hard hit” by the slowdown, the fund said.
IMF also warned on Thursday of growing risks of deflationary conditions in advanced economies.
“There is a clear need for additional macroeconomic stimulus relative to what has been announced thus far,” the fund said. “Room to ease monetary policy should be exploited, especially now that inflation concerns have moderated.”
As the credit crunch widens, the reversal in major developed countries is spreading to poorer nations, increasing demand for IMF loans.
In emerging and developing countries, GDP in 2009 will increase 5.1%, less than the 6.1 % expansion the fund predicted in October. China’s growth will measure 8.5% next year, weaker than the 9.3% forecast a month ago.
Since the fund produced its forecast in October, the outlook for developing countries has deteriorated as investors shunned their currencies and bonds, sending borrowing costs climbing.
India’s stock market and currency are both down. The benchmark index of the Bombay Stock Exchange has fallen 52.02% since January and the rupee has lost 17.42% against the dollar in the same period.
Mint’s Asit Ranjan Mishra contributed to this story.
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IMF predicts seven per cent growth for India in 2009
The global slowdown will affect India too, but with a projected growth rate coming down to a "still strong" seven per cent in 2009, the International Monetary Fund (IMF) sees the Indian economy continuing to perform well.
"There is some impact from tighter global liquidity conditions, but again we don't see major drag from this impact on India," a senior IMF official said on Wednesday. "So overall, we see the Indian economy continuing to perform well."
"Like all other countries, India will be affected by the global slowdown," said Charles Collyns, deputy director of the IMF's Research Department, at a press conference on its World Economic Outlook (WEO) released ahead of the annual meetings of the IMF and the World Bank here.
Noting that IMF was projecting the growth in India will come down from 8 per cent in 2008 to 7 per cent in 2009 he said: "But 7 per cent is still a strong rate of growth.
"That reflects the fact that India is still largely a closed economy, has strong internal growth dynamics, from rapid productivity growth, from its process of integration into the global economy that is still continuing," Collyns said.
Asked if the IMF has considered pushing countries like China and India to stop subsidising fuel prices to lessen demand, Olivier Blanchard, economic counsellor and director, said: "We're not in favour of long-lasting subsidies. However, we understand the desirability of having domestic prices adjust to world prices over time."
The WEO projects India's Gross Domestic Product (GDP) is likely to slowdown to 7.9 per cent in 2008 and slide further to 6.9 per cent in the next year. India recorded a GDP growth of 9.8 per cent in 2006 and 9.3 per cent in 2007.
"In India, growth in the second quarter came down to about 8 per cent, on the back of weakening investment," the report said, adding private consumption and export, however, continued to do well.
For Asia as a whole, the report said, economic growth rate was likely to slip to 7.7 per cent in 2008 and 7.1 per cent the next year in 2009.
The financial markets have weakened in recent months, driven by increasing concerns about the global outlook and declining investor risk appetite, particularly in the context of the September market turbulence.
Having experienced the largest run-up in prices during 2005-07 when prices more than quadrupled in China and tripled in India, the equity markets in Asia have declined, the report noted.
Underlying inflation pressures rose across emerging Asia in recent quarters. Wage increases, despite productivity improvements, have contributed to a buildup in inflation in some cases. In part owing to a rapid expansion of bank loans, house prices have continued to trend upward, it said.
In India, CPI inflation jumped to 9 per cent in August. Underlying inflation pressures have increased, as high resource utilisation and robust credit growth have created fertile ground for second-round effects. Insufficient policy tightening has also contributed.
Although increases in food and fuel prices may continue to subside in the coming months and growth will moderate, inflation is expected to remain at elevated rates over the near term, the WEO said.
The IMF said a major policy dilemma for Asia is how to respond to the weakening growth outlook and global financial turbulence, without losing sight of inflation risks.
Although there is considerable divergence in country circumstances, downside risks to growth in emerging Asia have risen in recent months, while inflation risks have moderated as food and oil prices came down from the peaks observed earlier in the year, it said.
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Report predicts US decline, rise of India, China, Brazil
The global trends review, produced by the National Intelligence Council, the United States' leading intelligence organisation, makes for some sobering reading for the Barack Obama [Images] administration which will take over in January 2009.
The latest report, produced every four years, predicts that the era of US's lone ranger style domination over the globe is over as we head into an increasingly fragmented world.
The report, 'Global Trends 2025: A world transformed', warns that the spread of American style democracy and capitalism cannot anymore be taken for granted anymore.
'In the wake of the 2008 global financial crisis, the State's role in the economy may be gaining more appeal throughout the world,' the report predicts, and cites the examples of Russia [Images] and China where 'wealth is moving not just from the West to the East but concentrating more under State control'.
Simultaneously, the United States will cease to retain its pre-eminence and become more of a 'first among equals', it says. In a fragmented world, the only way for the US to get its way will be through the support of strong partnerships.
Interestingly, only four years ago, as George Bush [Images] got ready for a second term as US president, the NIC report had forecast 'continuing American dominance'.
The downturn in America's fortunes benefits emerging economies such as China, India and Brazil [Images]. Interestingly, the European Union will also be on the wane, and lose clout by 2025, the report forecasts.
It is not all hosannahs for India in the report, however. Terming it as a 'complicated rise', the report says over the next 15-20 years Indian leaders will strive for a multi-polar international system, with New Delhi [Images] as one of the poles, and serving as a political and cultural bridge between a rising China and the US.
India will probably continue to enjoy relatively good economic growth, the report predicts, despite its lingering deficiencies in domestic infrastructure, skilled labour, and energy production.
What will propel India's economic growth are its rapidly expanding middle class, youthful population, reduced reliance on agriculture, and high domestic savings and interest rates.
At the same time, the report warns, while India's impressive economic growth over the last 15 years has reduced the number of people in absolute poverty, the growing gap between the rich and the poor will become an important political issue.
While regional and ethnic insurgencies will persist, the report says India's unity will not be threatened.