The International Monetary Fund (IMF) has retained India’s growth rate at 7.3 per cent in 2018, while it estimates the 2019 growth rate to touch 7.4 per cent.
However, the IMF has slashed its global growth forecast for this year and the next to 3.7 per cent owing to escalating trade disruptions between the United States and China.
According to the latest World Economic Outlook (WEO), the IMF said that the global economy is expected to grow at 3.7 per cent this year and next year – down 0.2 percentage points from an earlier forecast.
The IMF slashed China’s growth rate to 6.6 per cent in 2018 and further down to 6.2 per cent in 2019, from 6.9 per cent in the previous year. The lowered projection, the IMF said, was on account of China’s corporate, government, and household debt, which has added around USD 23 trillion in the past decade. Furthermore, China’s debt to GDP ratio increased by around 100 percentage points, indicating border-lining financial crisis.
Although China has used some of that debt to enhance industries and infrastructure, the IMF said a major chunk has been utilised for aiding loss-making public enterprises and investing in public facilities and housing.
Another economic law that China stands guilty of violating is that accumulating extensive surplus capacity leads to dwindling investments and GDP growth, which, in turn, leads to financial instability if early warning signs are not worked on.
On the other hand, the IMF increased growth projections for the United States from 2.2 to 2.9 per cent. However, it slashed growth rate estimates for the next year to 2.5 per cent.
According to the IMF, growth in the United States, buoyed by a procyclical fiscal package, continues at a robust pace and is driving US interest rates higher.
But US growth will decline once parts of its fiscal stimulus go into reverse. “Notwithstanding the present demand momentum, we have downgraded our
2019 US growth forecast owing to the recently enacted tariffs on a wide range of imports from China and China’s retaliation. China’s expected 2019 growth is also marked down. Domestic Chinese policies are likely to prevent an even larger growth decline than the one we project, but at the cost of prolonging internal financial imbalances,” the global financial body said.
The IMF also said that further disruptions in trade policies could occur owing to downside risks from two major impending regional trade arrangements-the United States-Mexico-Canada Agreement (which awaits legislative approval) and the European Union (with the latter negotiating the terms of Brexit).
US tariffs on China, and more broadly on auto and auto part imports, may disrupt established supply chains, especially if met by retaliation, it added.
US President Donald Trump recently sanctioned tariffs on an additional USD 200 billion worth of Chinese goods, almost 15 per cent of China’s total exports to the US. China’s response to the same has been rather reconciling, a reflection of their growing vulnerability.