IMF Predicts Lower Global Growth For 2014

The International Monetary Fund (IMF) released the World Economic Outlook on October 9, 2013. As per its projections, global growth would stand at 3.1% in 2013, while the growth forecast for 2014 has been revised from 3.8% to 3.6%. This reduction is mainly due to the slowdown in the emerging markets and public and private debts in advanced economies.

According to the report, emerging economies can come out of the crisis by implementing some structural reforms – for example, rebalancing consumption in China and removing investment barriers in India and Brazil. The countries where inflation is persistently above the target should tighten their policies. The emerging markets should have a credible monetary framework and interest rate should be the major concern for these nations.

As far as the situation in the United States goes, the government shutdown and debt ceiling issue are major concerns for the country. A prolonged failure to raise the debt ceiling would lead to extreme fiscal consolidation, which would hamper the economic recovery of the country. The expected growth rate for the US economy in 2013 is 1.9%, while the forecast for 2014 is about 3%.

The projected growth rate for China in 2013 is around 7.6%, while that for 2014 is at 7.2%. While the country is growing at a constant pace, the lower forecast for 2014 (as compared to that in 2013) is due to certain risks. Growth in the economy has been driven by investment and it has become a bit too dependent on social financing credit-driven investment, which may put the financial sector under stress and depress overall growth ahead.

Coming to India, the IMF has forecast growth coming in at 3.9% in 2013 and at 5.8% in 2014, revised downward from 5.6% and 6.3% respectively as predicted in July 2013. The decline was projected due to slow investment recovery. Weakness is observed in the mining and power sectors since project approvals have been delayed. Moreover, the monetary condition is very tight as the inflation and interest rates are higher, which in turn has put the demand for consumption under pressure. The 5.8% growth projected for 2014 is quite sustainable, and hence no major impact is expected.

The Government of India has stepped up to undertake various reforms, which in turn would improve the growth of the country. If the government remains successful on the policy front, we might witness better projection for India in IMF’s next forecast.