Amid trade tensions, International Monetary Fund marginally cuts India's growth rate

17 Juillet, 2018, 09:37 | Auteur: Auguste Feret
  • The headquarters of the International Monetary Fund in Washington. India’s economy was a key beneficiary of falling crude oil prices between 2013 and 2015 given that low oil prices incentivise consumption

The Fund also cut India's growth rate by a tenth of a point to 7.5 percent due to the negative effects of higher oil prices on domestic demand and faster than anticipated monetary policy tightening due to higher inflation.

As the organisation sounded the alarm amid an escalating trade war between the United States and China, it held firm with its projections for the world as a whole but warned that the "risks to the outlook are mounting".

India's growth rate is expected to rise as "drags from the currency exchange initiative and the introduction of the Goods and Services Tax fade", according to the report.

"The risk that current trade tensions escalate further with adverse effects on confidence, asset prices and investment is the greatest near-term risk to global growth", IMF Chief Economist Maury Obstfeld told a news conference, noting that US trade deficits are likely to grow due to high demand, possibly inflaming trade tensions further. While the U.S. faces greater risks from trade, the fund said that Trump's tax cuts would also mean the American economy would continue to grow in line with its previous estimates of around 2.4 per cent this year.

"We continue to project global growth rates of just about 3.9pc for both this year and next, but judge that the risk of worse outcomes has increased, even for the near term", it warned.

The IMF left its global economic growth forecasts unchanged at 3.9 percent for both 2018 and 2019 from its previous forecast issued in April.

Forecasts for the USA and China were both unchanged, with United States growth pegged at 2.9% in 2018 and 2.7% in 2019.

Click here for enlarge
Click here for enlarge

The rate of expansion appears to have peaked in some major economies and growth has become less synchronised.

The RBI had said there was a 12 per cent increase in the price of Indian crude oils basket, which was "sharper, earlier than expected and seems to be durable". "For the aggregate of emerging market economies, the upward and downward revisions largely offset each other", the report added.

US President Donald Trump has continued to threaten the European Union with tariffs on a number of goods which has sparked fierce retaliation from trading partners.

Beyond the immediate threat from weaker levels of worldwide trade, the IMF said that greater use of protectionist measures could hinder business investment, disrupt global supply chains, slow the spread of productivity-boosting technologies and raise the price of consumer goods.

"Our modeling suggests that if current trade policy threats are realised and business confidence falls as a result, global output could be about 0.5pc below current projections by 2020", the report warned.

"As the focus of global retaliation, the United States finds a relatively high share of its exports taxed in global markets in such a broader trade conflict, and it is therefore especially vulnerable", Obstfeld added. The terms of Brexit remained unsettled despite months of negotiation.

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