Published: Mon, January 20, 2020
Markets | By Otis Pena

IMF cuts global growth forecasts as economy remains 'sluggish'

IMF cuts global growth forecasts as economy remains 'sluggish'

India's growth is estimated at 4.8 per cent in 2019, projected to improve to 5.8 per cent in 2020 and 6.5 per cent in 2021 (1.2 and 0.9 percentage point lower than in the October WEO), supported by monetary and fiscal stimulus as well as subdued oil prices, it added.

The lender of last resort delivered the ailing currency bloc more growth downgrades, warning that a weaker German recovery and a slowdown in Spain would weigh on the region's economy this year.

"The downward revision primarily reflects negative surprises to economic activity in a few emerging market economies, notably India, which led to a reassessment of growth prospects over the next two years".

But the Fund did not give a boost to its U.S. growth forecast for China's pledges to increase purchases of USA goods and services by $200 billion over two years.

Growth will improve slightly to 3.4% in 2021, but that estimate, too, was cut by 0.2 percentage point from October, the Washington-based worldwide crisis lender said.

For the emerging market and developing economy group, the International Monetary Fund said growth is expected to increase to 4.4 per cent in 2020 and 4.6 per cent in 2021 (0.2 percentage point lower for both years than in the October WEO) from an estimated 3.7 per cent in 2019.

The IMF now expects global GDP growth of just 2.9% for 2019, 3.3% in 2020, and 3.4% in 2021.

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The big loser in this round of forecasts was India with the 2020 forecast cut to 5.8% from 7.0% on declining credit growth.

The World Bank estimated India's growth rate to be 5 per cent for the current fiscal, while the United Nations put it at 5.7 per cent.

Monday's downgrades were driven by a downward revision of India's economy and increased social unrest around the world previous year.

2019 refers to fiscal year 2019-20. "The risk of protracted subpar global growth remains tangible despite tentative signs of stabilizing momentum".

"But we have not reached a turning point yet".

Eurozone growth also was marked down 0.1 percentage point from October, to 1.3% for 2020, largely due to a manufacturing contraction in Germany and decelerating domestic demand in Spain.

United Kingdom forecast unchanged at 1.4%. "In the event of a more severe economic slowdown than now envisaged, any fiscal stimulus should be temporary, focusing on measures to boost near-term growth, such as immediate investment expensing or public infrastructure spending", International Monetary Fund had said. "Moreover, intensifying social unrest across many countries - reflecting in some cases, the erosion of trust in established institutions and lack of representation in governance structures - could disrupt activity, complicate reform efforts and weaken sentiment, dragging growth lower than projected".

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