India’s growth will benefit from recent policy reforms: IMF

Washington :Stating that India’s growth will benefit from recent policy reforms, a consequent pickup in investment, and lower commodity prices, the IMF today projected a 7.5 per cent growth rate for India in 2016, against China’s 6.3 per cent.

However for the current 2015 year, the IMF has projected 7.3 percent growth rate, which is 0.2 per cent less than its projection made for the year in July.

In emerging economies, growth will decline for the fifth year in a row in 2015, before strengthening next year, the IMF said in its report ‘G-20: Global prospects and challenges’ issued ahead of the G-20 Summit in Antalya, Turkey next week.

“Growth in China is expected to decline as excesses in real estate, credit, and investment continue to unwind. India’s growth will benefit from recent policy reforms, a consequent pickup in investment, and lower commodity prices,” the report said.

In Brazil, weak business and consumer confidence amid difficult political conditions and a needed tightening in the macroeconomic policy stance are expected to weaken domestic demand, with investment declining particularly rapidly.

In Russia, economic distress reflects the interaction of falling oil prices and international sanctions with preexisting structural weaknesses.

Emerging-economy growth is projected to rebound in 2016, reflecting mostly a less deep recession or an improvement of conditions in countries in economic distress (eg. – Brazil, Russia, and some countries in Latin America and the Middle East), the report said.

“Strong domestic demand in India should also be a positive factor in 2016,” IMF said.

“However, if the world economy’s transitions are not successfully navigated, global growth could be derailed,” it warned.

Prominent risks include: negative spillovers from China’s growth transition; further falls in commodity prices; adverse corporate balance-sheet effects and funding challenges related to dollar appreciation and tighter global financing conditions; and capital flow reversals.

Any of these could substantially weaken the recovery, particularly in emerging and developing countries, the report said.

First, the Federal Reserve is poised to normalize monetary policy while other major currency areas will likely be easing further.

Second, China’s economy is experiencing a needed moderation as it embarks on a historic and multi-year rebalancing of its growth model.

Third, the decade-long commodity super cycle appears to be over. At the same time, international migration has become a pressing economic issue for both sending and receiving countries, particularly in light of the ongoing refugee crisis, it noted.

After a modest and uneven expansion in 2015, the global economy is expected to grow next year at 3.6 per cent which, given sluggish global growth since the crisis, would be the fastest pace since 2011, the report said.

The projection is contingent on a confluence of favorable factors, with major advanced economies continuing to benefit from supportive monetary conditions and lower commodity prices.

After 5 years of decline capped by a turbulent summer emerging market economies would also be expected to pick up next year, as growth in distressed economies is less negative or recovers, the IMF said.

To secure a strong and durable recovery, policies need a decisive upgrade, the report said adding that the G-20 members are grappling with difficult trade-offs in the face of limited room for maneuver and a need to adapt to new realities.

This calls for a policy upgrade that combines structural reforms to raise future growth with effective demand-side measures that support today’s growth and maintain stability, it said.