Home Economy IMF lowers India growth projection for 2009 to 6.3 percent

IMF lowers India growth projection for 2009 to 6.3 percent

By Arun Kumar,IANS,

Washington : India’s growth is likely to slow down to 6.3 percent in 2009 with the International Monetary Fund (IMF) forecasting growth contraction in advanced economies and an appreciably slower growth in emerging economies.

The latest IMF forecast for world economic growth, released ahead of next week’s G20 summit here on global financial crisis has cut world growth by 0.75 percentage point to 2.2 percent with output in advanced economies forecast to contract on a full-year basis for the first time since World War II.

In emerging economies, growth is projected to slow appreciably but still reach five percent in 2009, the IMF said in its latest World Economic Outlook (WEO) published Thursday, updating the projections in the October WEO.

In the case of India, the growth projection for 2008 has been lowered to 7.8 percent, 0.1 percentage points less than the October projection with a further slowdown to 6.3 percent in 2009, 0.6 percentage points down from October.

As the IMF sharply revised its growth projections downward, saying that “global activity is slowing quickly”, it urged countries to stimulate their economies in the face of a bigger-than-expected slowdown in the global economy triggered by the recent financial turmoil.

“Prospects for global growth have deteriorated over the past month, as financial sector deleveraging has continued and producer and consumer confidence have fallen,” the latest IMF WEO said.

But the IMF noted that these projections were based on currently announced policies and advocated further policy actions to sustain demand.

“Global action to support financial markets and provide further fiscal stimulus and monetary easing can help limit the decline in world growth,” the WEO said.

Indian Prime Minister Manmohan Singh will be among world leaders attending the Nov 15 summit of the G20 – a forum of rich and emerging nations that was convened in 1999 after an earlier international crisis – at the invitation of President George W. Bush.

Finance ministers will meet Nov 8-9 in Sao Paolo, Brazil, ahead of the summit to discuss issues related to the crisis.

Other G20 members are Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the US and the European Union.

The IMF, which will also attend, has been asked to take the lead by its policy-setting body. The International Monetary and Financial Committee, in line with its mandate, is drawing the necessary policy lessons from the current crisis and recommending effective actions to restore confidence and stability. These ideas could feed into the summit discussion.

IMF Chief Economist Olivier Blanchard told a news conference: “We think that global fiscal expansion is very much needed at this point. If it comes, then the forecast we have will be on the pessimistic side.”

The IMF, he said, would “advocate at the G20 a global fiscal expansion as one of the measures that has to be taken fairly soon”.

Jorg Decressin, of the IMF’s Research Department, told the news conference that the US, Germany, and China were among the countries that have room for additional fiscal stimulus.

According to the WEO update, activity in the advanced economies is now expected to contract by 0.25 percent on an annual basis in 2009, down 0.75 percentage point from the October 2008 WEO projections.

This would be the first annual contraction during the post-war period, although the downturn is broadly comparable in magnitude to those that occurred in 1975 and 1982. A recovery is projected to begin late in 2009.

The US economy will suffer as households respond to depreciating real and financial assets and tightening financial conditions. Growth in the euro area will be hard hit by tightening financial conditions and falling confidence. In Japan, the support to growth from net exports is expected to decline.

The downward revisions to 2009 real gross domestic product (GDP) growth projections are somewhat larger in emerging and developing economies, averaging one percent. This would leave their growth rate at 5 percent, higher than in earlier business cycle troughs (for example, in 1990, 1998 and 2001).

However, the cyclical downturn in emerging economies is of a similar magnitude to that in the advanced economies when measured relative to higher trend growth rates, in line with past cycles, the IMF said.