World Economic Outlook 2019- Growth Slowdown, Precarious Recovery: IMF

• 10 Apr 2019

The International Monetary Fund (IMF) has cut India’s Gross Domestic Product (GDP) growth forecast for 2019-20, following similar action by the Asian Development Bank (ADB) and the Reserve Bank of India (RBI).

• The World Economic Outlook (WEO) is a survey by the IMF staff published twice a year.

Highlights

• Global
  • The global growth will be 3.3% in 2019, down from 3.6% in 2018 and 4% in 2017. Few reasons being: U.S.-China trade tensions, macroeconomic stress in Turkey and Argentina, tighter credit policies in China, mounting debt levels and increasing inequality etc.
    • This forecast of global growth is lowest since the financial crisis of 2008.
  • The IMF expects growth to pick up in the second half of the year and return to 3.6%, but this is subject to a rebound in Argentina and Turkey.
    • Brexit uncertainties and China’s growth not being as high as expected (down from 6.6% in 2018 to 6.3% and 6.1% in 2019 and 2020 respectively) are risks that will impact these projections.
  • Beyond 2020, the IMF predicts that global growth will stabilise at around 3.5%, buoyed mainly by growth in China and India.
• India
  • India’s growth is projected to pick up to 7.3% in 2019 (2019-20) and 7.5% in 2020. The pick up in growth is because of:
    • The continued recovery of investment and robust consumption.
    • A more expansionary stance of monetary policy and some expected impetus from fiscal policy.
    • These forecasts are nevertheless less by 10 and 20 basis points from earlier forecasts.

Recommendations

• At the global level, the report stated that there is a need for greater multilateral cooperation to resolve trade conflicts, to address climate change and risks from cybersecurity, and to improve the effectiveness of international taxation.
• The following are the recommendations specific to India:
  • In terms of policy, it has called for a continued implementation of structural and financial sector reforms in order to lower public debt and aid growth.
  • The report emphasized enhancing governance of public sector banks and reforms to hiring and dismissal regulations that would incentivize job creation and absorb the country’s large demographic dividend.
  • A continued fiscal consolidation is needed to bring down public debt, strengthening goods and services tax compliance and lowering subsidies.
• The report also noted the steps taken by Government to speed up the resolution of Non Performing Assets (NPAs) and a simplified bankruptcy framework — measures that can be reinforced by stronger governance of public sector banks.
• The IMF also calls for laws around land reform to change, to expedite infrastructure development as well as changes to hiring and firing laws in order create jobs and absorb the India’s large demographic dividend.