High interest rates, oil prices to eat into India’s growth

Marco Green
July 17, 2018

"Amid rising tensions over worldwide trade, the broad global expansion that began roughly two years ago has plateaued and become less balanced", the IMF noted.

China has matched USA tariffs dollar for dollar and threatened to take other steps to retaliate, while United States exports face retaliatory taxes from Canada, Mexico and the European Union.

The International Monetary Fund (IMF) has trimmed India's growth projection by 0.1 percentage point for 2018-19 owing to high oil prices and a tight monetary policy regime.

"Our modeling suggests that if current trade policy threats are realized and business confidence falls as a result, global output could be about 0.5 percent below current projections by 2020", International Monetary Fund chief economist Maury Obstfeld said in a statement.

The report comes as US President Donald Trump has imposed steep tariffs duties on $34 billion in imports from China, with another $200 billion coming as soon as September, on top of duties on steel and aluminum from around the world including key allies. However, it forecast sharp slowdowns for the EU, UK and Japan amid weaker growth and increasing political tension.

The IMF also emphasised the need for "a truly global effort ... to curtail corruption", because it "undermines faith in government in so many countries".

China has matched U.S. tariffs dollar-for-dollar and threatened to take other steps to retaliate, while USA exports face retaliatory border taxes from Canada, Mexico and the European Union.

Beyond the immediate threat from weaker levels of worldwide trade, the IMF said that greater use of protectionist measures could hinder business investment, disrupt global supply chains, slow the spread of productivity-boosting technologies and raise the price of consumer goods. Growth in China is projected to moderate from 6.9% in 2017 to 6.6% in 2018 and 6.4% in 2019.

On Saturday, Economic Affairs Secretary Subhash Chandra Garg had said, "Eight per cent growth is very much achievable".

The IMF, however, noted that even the USA growth could decelerate over the next few years, as the long cyclical recovery ran its course and the effects of temporary fiscal stimulus waned.

China's growth also is seen slowing in 2019 to 6.4 percent.

"We continue to project global growth rates of just about 3.9 per cent for both this year and next, but judge that the risk of worse outcomes has increased, even for the near term", he said. France's GDP is expected to grow 1.8 percent and 1.7 percent.

As for reducing the projections for India, it said they reflect the "negative effects of higher oil prices on domestic demand and faster than-anticipated monetary policy tightening due to higher expected inflation". The economy was projected to grow 7.8 per cent by 2019-20 by the Fund earlier, but now the projection stood at 7.5 per cent, according to the World Economic Outlook (WEO) Update, released on Monday.

Other reports by Click Lancashire

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