Growth forecast cut foretold: How to read IMF chief’s pessimism on India

Georgieva said growth in 2019-2020 will fall to its lowest rate since the beginning of the decade due to widespread deceleration.

The new IMF managing director Kristalina Georgieva said Wednesday the global economy was witnessing “synchronized slowdown" and its effect is “more pronounced" in emerging markets such as India and Brazil.

What is the reason for this pessimism?

The IMF chief cited trade tensions having "substantially weakened" manufacturing and investment activities worldwide as one of the primary reasons for the pessimistic projection.

In her first speech since taking the helm of the multilateral lender on October 1, Georgieva also warned of a serious risk that services and consumption could soon be affected, as global trade growth “has come to a near” standstill.

Georgieva said growth in 2019-2020 will fall to its lowest rate since the beginning of the decade due to widespread deceleration.

What does this projection say about emerging market economies, including India?

What this implies is that the IMF, in its World Economic Outlook expected next week, could revise downward its growth forecast for India. The Asian Development Bank (ADB) and the Organisation for Economic Cooperation Development (OECD) have already carried out similar markdowns.

Last month, ADB and OECD revised downwards their for FY20 growth forecasts for India by 50 basis points and 1.3 percentage points to 6.5% and 5.9%, respectively.

Last week, the RBI cut its growth projection from 6.9% to 6.1% for 2019-20. Standard & Poor’s has also pared down its india growth forecast for the year to 6.3% from 7.1% earlier.

The IMF too had pared down its 2019-20 growth forecast for India in July by 30 basis points to 7%, expecting weaker domestic demand to limit an economic recovery.

The Indian economy is faced with a debilitating demand slowdown and liquidity crunch, which has forced down economic growth rate to a six-year low of 5% in the June quarter.