IMF lowers India`s growth forecast

BS Reporter / New Delhi April 10, 2008

Weaker demand for Indian exports and higher financing costs will lead to a deceleration in India’s gross domestic product (GDP) growth rate to 7.9 per cent in 2008, the International Monetary Fund has said.

In its latest World Economic Outlook, the Fund said GDP growth in 2009 would be 8 per cent.

The IMF’s growth projections for India are in line with other estimates, including that of the Asian Development Bank, which pegged the 2008-09 growth at 8 per cent.

India’s GDP grew at a scorching 9.6 per cent in 2006-07 and is expected to moderate to 8.7 per cent in 2007-08.

The IMF also revised downwards its January estimate for global growth to 3.7 per cent for 2008, from 4.2 per cent earlier. It has also projected that growth in China will moderate to 9.3 per cent in 2008 from 11.4 per cent in 2007.

GDP FORECAST FOR INDIA: ‘08-09
Forecast	(in %)
IMF	7.9
ADB	8.0
UNESCAP	9.0
Citigroup	7.7
Deutsche Bank	8.4
Morgan Stanley	7.0
JP Morgan Chase	7.0
HSBC	7.0
UBS	8.2

The IMF now sees a 25 per cent chance that global growth will drop to 3 per cent or less in 2008 and 2009 — equivalent to global recession.

The IMF report cautions that many emerging economies, including India, should be ready to respond to slowing growth and more difficult financing conditions if the external environment deteriorates sharply.

However, the Fund has maintained that unlike China, which has a strong fiscal position, there is hardly any scope for India to use fiscal stimulus to guard against a possible slowdown.

“In countries such as India, continued efforts at fiscal consolidation remain an important priority, despite recent progress, limiting room for counter-cyclical fiscal policy,” the report states.

The IMF said that robust domestic demand combined with rising food and energy prices has contributed to a build-up of inflationary pressures in some Asian economies, like India.

“In India, monetary tightening earlier in the year led to an easing of inflation by the end of 2007. However, inflation started to pick up in 2008 owing to rising commodity prices,” the Fund said.