The World Economic Outlook (WEO) update released by the International Monetary Fund (IMF) has cut India’s growth rate for the fiscal year 2016–17 to 6.6% from its previous estimate of 7.6%.
India’s growth rate was cut due to the temporary negative consumption shock of demonetisation. It has dampen India’s growth by 1% point in the FY2017 and 0.4% point in FY2018, compared with IMF’s earlier projections.
Key highlights of IMF’s Outlook
- Global economic activity will pick up pace in FY17 and FY18, especially in emerging markets and developing economies. Global growth is forecast at 3.4% in FY17 against 3.1% in FY16.
- There is marginal upward shift in prospects for the US and China until 2018 but India, Mexico and Brazil are among the large economies that have had their projections revised downwards.
- For China, the growth forecast for FY 2017 was revised upwards, to 6.5%, 0.3% point above the October 2016 forecast. In 2018, China’s growth rate is projected to be 6% against India’s 7.7%.
- The recent election of Donald Trump as US President could have a positive impact on US economy, but extent of it could not be gauged immediately.
- The stimulus policies expected and already underway in US and China will hold world economy from further slowdown and result in rise of global growth.
- India’s Demonetisation move led to shortage of currency causing a slump in demand and widespread job losses dampening growth.
- Other Asian countries such as Thailand and Indonesia will also face headwinds in medium term.