India warned of US economic slowdown

NEW DELHI: The International Monetary Fund (IMF) has said emerging economies, including India, face the risk of protectionist pressures arising from a slowdown in the US economy. IMF deputy director Charles Collyns said capital flows to emerging markets have been strong even as corrections in these markets are getting smaller.

Addressing a seminar conducted by the Indian Council for Research on International Economic Relations on the Challenges for the global economy, Mr Collyns said while the global economy could be headed for a soft landing, risks such as a slowdown in the US housing market, concerns over inflation and oil could be challenging. Some of the longer-term issues are unwinding of global imbalances and sustaining global productivity growth.

Though the housing correction has cooled the US economy, with a decrease in residential investment and non-residential construction, the labour market remains relatively strong, he said. The slowdown, however, has had a limited impact on the rest of the world. Despite no change in the consumption rate in Europe, investment and exports are strong in the euro area, on the back of growing labour productivity and employment, Mr Collyns said.

The IMF official said inflation risks are down and headline inflation has moderated. Rising levels of capacity utilisation have been seen everywhere with output gap as a percentage of potential GDP accounting for as much as 4% in some of the advanced economies.

“Emerging market and developing country growth has been strong, where rising commodity prices have been an important support,” he said. In its short-term outlook, the IMF has said notwithstanding recent volatility and the US slowdown, continued robust global growth still looks the most likely outcome. However, global policy makers and financial markets need to be ready for surprises.