IMF retains India's growth target at 5.4%; all emerging economies see cut

NEW DELHI: India is the only big emerging economy to escape a cut in the International Monetary Fund's update of its World Economic Outlook that says the global economy seems to have tripped on an unexpected contraction in the US economy in the first quarter.

IMF has retained its forecast of 5.4% growth in Indian economy in 2015 and a stronger 6.4% growth next year.

"In India, growth appears to have bottomed out, and activity is projected to pick up gradually after the post-election recovery in business sentiment, offsetting the effect of an unfavourable monsoon on agricultural growth," the IMF said.

In fact, out of the BRICS countries - Brazil, Russia, India, China and South Africa - only India avoided an IMF ratings downgrade, as business sentiment recovers after the country's election.
Global economy is now projected to grow only 3.4% in 2014, down 0.3 percentage point from the earlier forecast. "The recovery continues, but it remains a weak recovery, indeed a bit weaker than we forecast in April," Olivier Blanchard, Economic counsellor, IMF, said in a statement attributing the downward revision largely to the developments in the US.

"In retrospect, it (first quarter contraction in the US) seems to be largely due to one-off factors, ranging from an inventory correction to unusually bad weather.

Looking forward, US growth for the rest of the year is still forecast to be 3.25% and 3% in 2015," he said. IMF has retained its 2015 forecast at 4%, but warned that geopolitical risks have risen.

"Global growth could be weaker for longer, given the lack of robust momentum in advanced economies despite very low interest rates and the easing of other brakes to the recovery," the IMF said in its outlook warning geopolitical risks could lead to sharply higher prices.

The emerging economies faced "the negative growth effects of supply-side constraints and the tightening of financial conditions over the past year could be more protracted," the IMF said but added that leading indicators suggested global recovery regaining strength in the second quarter of 2014.

Barring India, all other BRICS members saw their forecast cut in the review, with Russia taking the biggest knock — its likely growth is now pegged at 0.2% compared with 1.3% earlier and, for 2015, at 1% instead of 2.3% earlier. "This reflects mainly a deterioration of business confidence, which has been aggravated by geopolitical tensions. The result has led to large capital outflows, and a near freeze in investment decisions," Blanchard said.