A support vessel flying an Iranian national flag sails alongside the oil tanker ‘Devon’ as it prepares to transport crude oil to export markets in Bandar Abbas, Iran. (Photographer: Ali Mohammadi/Bloomberg)

IMF Cuts India Growth Forecast A Touch On Higher Oil Prices

The International Monetary Fund has cut India’s growth forecast for fiscal year 2018-19 and 2019-20, citing the drag from higher oil prices and tighter monetary policy.

In the July review of its World Economic Outlook, the IMF said that it expects emerging and developing Asia to maintain its robust performance. However, country-specific factors led the multi-lateral agency to peg down growth forecasts for both India and China.

In the case of India, growth in 2018-19 is seen at 7.3 percent. This is 0.1 percentage point lower than the IMF’s previous projection. For the next financial year, growth is now seen at 7.5 percent, 0.3 percentage point lower than earlier expected.

The cut in growth rates reflects the negative effects of higher oil prices on domestic demand, said the IMF. Faster-than-anticipated monetary policy tightening due to higher than expected inflation could also weigh on growth, it added.

The expected growth rate for China has also been cut modestly.

Growth in China is projected to moderate from 6.9 percent in 2017 to 6.6 percent in 2018 and 6.4 percent in 2019, said the IMF. It cited regulatory tightening of the financial sector and softening external demand as the key factors likely to impact growth in China.

Growth in the top five ASEAN economies is expected to stabilise at around 5.3 percent as domestic demand remains healthy and exports continue to recover, said the IMF.

Global Growth Forecast

The IMF retained its forecast for global growth at 3.9 percent. “The baseline forecast assumes gradually tightening but still favorable financial conditions,” it said.

Advanced economy growth is expected to remain above trend at 2.4 percent in 2018—similar to 2017—before easing to 2.2 percent in 2019. The forecast for 2018 is lower by 0.1 percentage point compared to the April forecast.

Commenting on the impact of trade tensions, the IMF said that the “direct contractionary effects” of recently announced trade measures are expected to be small, as these measures affect only a very small share of global trade so far. “The baseline forecast also assumes limited spillovers to market sentiment, even if escalating trade tensions are an important downside risk,” it added.

Also read: Trade War Imperils World Growth as IMF Sees ‘Complacent’ Markets