Growth in India will rebound to 7.4 per cent in the financial year 2018/19 as the economy recovers from effects of demonetisation and the roll-out of the Goods and Services Tax, the International Monetary Fund forecast on Wednesday.
The IMF’s Asia and Pacific Regional Economic Outlook report said that “the recovery is expected to be underpinned by a rebound from transitory shocks as well as robust private consumption.”
Medium-term consumer price index inflation is forecast to remain within but closer to the upper bound of the Reserve Bank of India’s inflation-targeting band of four per cent with a plus or minus two per cent change, the report said.
“In India, given increased inflation pressure, monetary policy should maintain a tightening bias,” it cautioned.
According to the latest regional report, Asia continues to be the main engine of the world’s economy, accounting for more than 60 per cent of global growth—three-quarters of which comes from China and India alone.
“But there are risks and challenges ahead, including from a tightening of global financial conditions, a shift toward inward-looking policies, and—over the longer run—population aging, slowing productivity growth, and the rise of the digital economy.”
The good news is that strong growth is expected to continue in the near term. The IMF forecasts growth for Asia at 5.6 per cent this year and next.The outlook is supported by strong global demand, as well as still accommodative policies and financial conditions.
China’s growth is expected to moderate to 6.6 percent in 2018 as financial, housing, and fiscal tightening measures take effect. Growth in ASEAN is projected to stay at 5.3 percent both this year and next,reflecting strong investment and consumption across several countries.
The report said growth momentum could be more durable than expected amid strong consumer and business confidence and still loose financial conditions. The roll-out of the fiscal stimulus in the US as well as a stronger recovery in the euro area could lift global growth, with positive spillovers to Asia.
But over the medium-term, Asia is vulnerable to a tightening of global financial conditions, spurred by higher U.S. interest rates, which could trigger capital outflows.
Further, a global shift toward inward-looking policies would be worrying given Asia’s trade openness—suppressing Asia’s exports and reducing foreign direct investment in the region.
Escalating geopolitical risks as well as natural disasters and cyberattacks could also negatively impact the region’s medium-term growth.
And over the longer term, Asia faces a number of important challenges from population aging, slowing productivity growth, and the digital revolution, which of course brings huge opportunities along with risks.