22.1.14

IMF bumps up India's growth forecasts


The International Monetary Fund (IMF) has bumped up India’s growth forecast for the current fiscal by more than half a percentage point thanks to a normal monsoon and improved exports, virtually admitting that it may have been too pessimistic in October when it pegged the number at less than 4%.
Finance minister P Chidambaram had led India’s strong protests against IMF’s assessment, which was made amid economic gloom and a depreciating currency. In an update of its flagship World Economic Outlook (SEO), the IMF said that India will grow 4.4% in 2013-14 in terms of market prices against the 3.8% estimated initially, citing a better second half. “Growth in India picked up after a favourable monsoon season and higher export growth and is expected to firm further on stronger structural policies supporting investment,” it said.
In terms of factor cost, which is the more widely used method of computing national income in India, growth is pegged at 4.6%, revised upward from 4.25% estimated earlier.
IMF sees growth rising to 5.4% in 2014-15 and 6.4% in the year after, which is lower than the respective 6.2% and 7.1% recovery forecast by its Bretton Woods twin, the World Bank.
The estimate for 2014-15 is marginally higher than the October forecast of 5%. The fund said global activity strengthened in the second half of 2013 and expects it to gather pace thanks to a recovery in advanced economies. It sees 2014 calendar growth at 3.7% against 3.6% estimated earlier, which is forecast to rise to 3.9% in 2015. “The basic reason behind the stronger recovery is that the brakes to the recovery are progressively being loosened. The drag from fiscal consolidation is diminishing. The financial system is slowly healing. Uncertainty is decreasing,” said Olivier Blanchard, IMF chief economist.
The report – Is the tide rising? – warns that “downward revisions to growth forecasts in some economies highlight continued fragilities, and downside risks remain”. Estimates have been lowered for the Association of Southeast Asian Nations (Asean), Italy and the Commonwealth of Independent States, or CIS, led by Russia.
It said the euro area was turning the corner from recession to recovery, adding that growth is likely to rise to 2.8% in the US in 2014 from 1.9% in the current year, which is good news for India’s exports. The report cautions against any rushed withdrawal of stimulus programmes.
“With prospects improving, however, it will be critical to avoid a premature withdrawal of monetary policy accommodation, including in the United States, as output gaps are still large while inflation is low and fiscal consolidation continues,” it said, adding that strong growth is needed to repair balance sheets.
In the case of emerging market and developing economies, it said there was a need to manage the risk of potential capital flow reversals.

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