India Suffers Largest Growth Forecast Cut Among Emerging Markets
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The International Monetary Fund (IMF) has lowered India’s economic growth estimate from 6.9 percent to 6.1 percent for 2012, reported Reuters on Monday, with the cut seen to be the steepest among any emerging economy in the world.
“In the past three months, the global recovery, which was not strong to start with, has shown signs of further weakness,” wrote the IMF in its latest World Economic Outlook report.
The International Monetary Fund (IMF) has lowered India’s economic growth estimate from 6.9 percent to 6.1 percent for 2012, reported Reuters on Monday, with the cut seen to be the steepest among any emerging economy in the world.
“In the past three months, the global recovery, which was not strong to start with, has shown signs of further weakness,” wrote the IMF in its latest World Economic Outlook report.
“Downside risks continue to loom large, importantly reflecting risks of delayed or insufficient policy action,” it added.
Consequently, “growth momentum has also slowed in various emerging market economies, notably Brazil, China, and India.”
[quote]“This partly reflects a weaker external environment, but domestic demand has also decelerated sharply in response to capacity constraints and policy tightening over the past year,” the report said.[/quote]Related: Foreign Investors Forsaking India for More Promising Emerging Markets
Related: India Could Be Downgraded to ‘Junk’ Status: S&P
Last week, the Asian Development Bank, too, scaled down its projection for India’s economic growth rate to 6.5 percent for this financial year, against 7 percent estimated earlier.
According to a report by the Wall Street Journal, India faced the severest cut among emerging economies partly due to the weakness of the rupee, which fell to a record low of 57.33 against the U.S. dollar on June 22.
“India is a rising concern, with the rupee recently weakening to new record lows, as the need to finance large fiscal and current-account deficits is pressuring markets,” the report said.
Furthermore, the IMF also recommended that India slash its fuel and food subsidies, so as to spur investment in the country.
[quote]”A determined reduction in costly subsidies would be a strong signal of a credible fiscal turnaround. It would also allow relaxation of financial restrictions, spurring private investment and growth.”[/quote]Related: The Broken BRIC – Why India’s Economy Is Underperforming: Raghuram Rajan
Related: China vs. India – Is Either Economy At Risk? : Stephen Roach
On Monday, the IMF also cut its 2013 growth forecast for India down to 6.5 percent from 7.3 percent. Comparatively, China’s growth estimate only fell from 8.2 percent to 8.0 percent in 2012, and from 8.8 percent to 8.5 percent next year.
Worldwide, the forecast for growth in emerging economies will be 5.6 percent in 2012, before expanding to 5.9 percent in 2013. Africa and the Middle East were the only two regions that did not face any cuts to their growth forecasts, at 5.4 percent and 3.4 percent respectively.
