Post-election activity in India to pick up gradually, says IMF

Washington: Stating that growth appears to have bottomed out in India, International Monetary Fund (IMF) on Friday said activity is projected to pick up gradually after the post-election recovery in business sentiment, neutralising the effect of weak monsoon on agriculture.

"In India, growth appears to have bottomed out, and activity is projected to pick up gradually after the post-election recovery in business sentiment, offsetting the effect of an unfavourable monsoon on agricultural growth," the IMF said in its update of the World Economic Outlook, according to which an uneven global recovery continues.

In its update, the IMF has projected a 5.4 growth rate for India in the year 2014 and 6.4 in the year 2015. The IMF said the global growth projection for 2014 has been marked down by 0.3 per cent to 3.4 per cent, reflecting both the legacy of the weak first quarter, particularly in the United States, and a less optimistic outlook for several emerging markets.

With somewhat stronger growth expected in some advanced economies next year, the global growth projection for 2015 remains at 4 percent, it said.

Global growth is expected to rebound from the second quarter of 2014, as some of the drivers underlying first quarter weakness, such as the inventory correction in the United States, should have only temporary effects, and others should be offset by policies, including in China. But the first-quarter setback will only be partially offset, it said.

The IMF said growth is now projected to decrease to 4.6 per cent in 2014 and then strengthen to 5.2 per cent in 2015. Noting that downside risks remain a concern, the report said increased geopolitical risks could lead to sharply higher oil prices.

Financial market risks include higher-than-expected US long-term rates and a reversal of recent risk spread and volatility compression, it said.

Global growth could be weaker for longer, given the lack of robust momentum in advanced economies despite very low interest rates and the easing of other brakes to the recovery.

In some major emerging market economies, the negative growth effects of supply-side constraints and the tightening of financial conditions over the past year could be more protracted, the report said.

"In many advanced and emerging market economies, structural reforms are urgently needed to close infrastructure gaps, strengthen productivity, and lift potential growth," the IMF said.