IMF cuts global growth forecast to 3.4%; India’s growth unchanged at 5.4%

The International Monetary Fund (IMF) has cut its global economic growth forecast for this year to 3.4 per cent, down from the 3.7 per cent projected in April, primarily due to a slowdown in the US and major emerging market economies, risks from geopolitical tensions and volatility in financial markets.

In its world economic outlook update released yesterday, the IMF kept the next year's global growth projection unchanged at 4 per cent.

India's growth has been kept unchanged at 5.4 per cent for 2014 and 6.4 per cent for 2015 as the IMF expects investment will pick up gradually in the rest of the year, which will offset the weak first-quarter agricultural performance.

The IMF projection is in line with the economic survey tabled by the Indian finance minister Arun Jaitley a fortnight ago, which expects the country's economy to grow in the range of 5.4-5.9 per cent in 2014-15 overcoming the sub-5 per cent GDP growth of the past two years.

For 2013-14, the country registered its lowest growth in the decade with 4.7 per cent.

"The growth slowdown in the last two years was broad-based, affecting in particular the industry sector. Inflation too declined during this period, but continued to be above the comfort zone, owing primarily to the elevated level of food inflation", the finance minister had then said.

The IMF has slashed its growth forecast for the US, the world's largest economy, to 1.7 per cent in 2014 from 2.8 per cent in April. However, the figure for 2015 has been kept close to the earlier estimate of 3 per cent.

The Japanese economy is projected to grow 1.6 per cent in 2014 but expected to decelerate to 1.1 per cent next year due to unwinding of fiscal stimulus that was deployed earlier this year.

The outlook for the euro area is broadly unchanged compared to the April forecasts, but performance will remain uneven across the region. Overall, the growth is expected to be 1.1 per cent in 2014 which would move up to 1.5 per cent next year.

Germany, Europe's largest economy is forecast to grow 1.9 per cent this year followed by a 1.7 per cent rise in 2015.

Italy is expected to post a mere 0.3 expansion in 2014 followed by 1.1 per cent growth in 2015.

Economic growth will be stronger than expected in the UK with the economy expanding 3.2 per cent in 2014, up 0.4 per cent compared to the April estimate, followed by 2.7 per cent growth in 2015, up 0.2 per cent.

Overall, emerging economies are projected to grow 4.6 per cent this year and 5.2 per cent next year, lower than the previous estimate.

China, the world's second-largest economy, is expected to grow 7.4 per cent this year and 7.1 per cent in 2015, down by 0.2 per cent from the earlier estimate in both the cases.

Among other BRICS nations, Russia's growth projections have been cut by 1.1 per cent to a dismal 0.2 per cent in 2014 and by 1.3 per cent to 1 per cent next year. 

Growth in Brazil, the world's seventh-largest economy, has also been slashed to 1.3 per cent in 2014 and 2 per cent in 2015. South Africa is projected to grow 1.7 per cent this year and 2.7 per cent next year.

Downside risks to global economic growth continue to fester, the IMF said.

Risks from geopolitical tensions have risen as those related to Ukraine are still alive and new risks have emerged in the Middle East.

Besides, financial market volatility could rise with capital flow reversals and the widening of risk spreads, set off by falling investor appetite or a sharper-than-expected rise in U.S. long-term rates, the report said.

The IMF is optimistic that global growth will rebound as the temporary constraints recede and recent global policy actions to support expansion gain traction.