Washington DC: The International Monetary Fund warned that global economic growth was slowing more than expected and that a sharp downturn could require world leaders to coordinate stimulus measures.
The global lender cut its global economic growth forecasts for 2019 and said key risks included a US-China trade war and a potentially disorderly British exit from the European Union.
The IMF said it still expects that a sharp slowdown in Europe and some emerging market economies will give way to a general re-acceleration in the second half of 2019.
But chances of further cuts to the outlook are high, the Fund said in its World Economic Outlook report. Already some major economies, including China and Germany, might need to take short-term actions, the IMF said.
“This is a delicate moment for the global economy,” IMF chief economist Gita Gopinath said in a news conference.
Gopinath said a sharp downturn might require synchronized fiscal stimulus “across economies” as well as loose monetary policy.
The IMF and World Bank are holding their spring meetings in Washington this week. In its third downgrade since October, the IMF said the global economy will likely grow 3.3 percent this year, the slowest expansion since 2016. The forecast cut 0.2 percentage point from the IMF
s outlook in January.
The projected growth rate for next year was unchanged at 3.6 percent.
More than two-thirds of the expected slowdown in 2019 owes to trouble in rich nations.
"In this context, avoiding policy missteps that could harm economic activity should be the main priority," the IMF said its report.
One potential misstep lies in Britains indecision over how to leave the EU. Despite looming deadlines, London has not decided how it will try to shield its economy during the exit process. The IMF
s new forecast assumes an orderly "Brexit," but the Fund said a chaotic process could shave more than 0.2 percentage points from global growth in 2019.
The IMF said the Bank of England should be "cautious" on its interest rate policy, an apparent tip to wait before hiking borrowing costs.
The EUs economic growth is already slowing substantially, and the slowdown accounted for much of the reduction in the global growth forecast.
s outlook suffered from weaker demand for its exports, softer consumer spending and new emissions standards that have depressed car sales.
Germany may have to quickly turn to fiscal stimulus measures, the IMF said, also calling on the European Central Bank to keep stimulating the regional economy. The IMF also cut Japans growth outlook following a string of natural disasters.
The US economy, while seen outperforming other rich nations, also got a downgrade on signs that a fiscal stimulus fueled by tax cuts was producing less activity than previously expected.
US Treasury yields slid on concerns about the global economic outlook while the S&P 500 index and the Dow Jones Industrial Index were down more than half a per cent amid worries that a U.S. threat to slap tariffs on hundreds of European goods would be a further economic drag.
The IMF said it supported the US Federal Reserve
s decision to pause its rate-hiking cycle, which the global lender said would support the US and world economies this year by easing financial conditions. The IMF raised its forecast for U.S. growth in 2020 by a tenth of a percentage point to 1.9 percent.
The global lender said it was slightly boosting its outlook for Chinese growth this year - to 6.3 percent - in part because an expected escalation in the U.S.-China trade war did not materialize.
Still, Americas ongoing tensions with China and other major trading partners remain a risk for the global economy.
US tariffs on Chinese imports are hitting Chinese growth and also weighing on Latin America and other areas dependent on Chinese demand for commodities.
In a World Economic Outlook chapter released last week, the IMF said an escalation of the US-China trade war would drive manufacturing away from both countries and cause job losses, but would do little to change their total trade balances.
If 25 percent tariffs were imposed on all trade between the world
s two largest economies, US GDP would fall by up to 0.6 percent and Chinas would fall by up to 1.5 percent, the IMF said.
The IMF also cut its 2019 growth forecasts for Canada and Latin America as well as for the Middle East and North African countries.
China was trying to rebalance its massive economy away from investment and exports when U.S. President Donald Trump ordered higher tariffs on Chinese imports beginning in 2018. China responded with retaliatory tariffs on US goods.
In an ominous sign, the IMF said Beijing might need to unleash fiscal stimulus “to avoid a sharp near-term growth slowdown that could derail the overarching reform agenda.”
But Gopinath, the IMF chief economist, said the Chinese economy was already showing some signs of recovered growth, which she described as “green shoots.”
India will achieve 8 pc plus growth from FY 2020-2021 onwards: Rajiv
New York: NITI Aayog Vice Chairman Rajiv Kumar has voiced confidence that India will achieve economic growth of 8 per cent plus from fiscal year 2020-2021 onwards as structural reforms like the GST are set to produce the benefits.
The eminent economist was in the city for the High Level Political Forum Ministerial Meeting on Sustainable Development Goals at the United Nations Headquarters.
During his visit, he delivered the keynote address at the ‘India Investment Seminar’ held at the Consulate General of India, New York.
Kumar stressed that in the next five, the Modi government is focussed on accelerating growth from the current about seven per cent to more than eight per cent that will propel the country to easily achieving the target of becoming a five trillion dollar economy.
“I personally think that in the fiscal year 2020-2021 onwards, we will achieve higher than 8 per cent growth, (continuing) then for the next many years. It is just a fact of (growth) taking off,” Kumar said.
“The foundation has been laid and the transformation has begun with the passing of structural reforms like the Goods and Services Tax, Insolvency and Bankruptcy Code. These have taken their time to settle down and now they’ll produce the benefits,” Kumar told PTI in an exclusive interview.
“We have the potential to grow at double digit growth rates,” he said.
On the issue of job creation, Kumar emphasised that a very large number of jobs have been generated in the country in the last five years.
“If it was always a jobless growth, then that would have shown up in social strife and social tensions and surely would have meant that this government would not have been re-elected,” he said, adding that the re-election of Prime Minister Narendra Modi-led government shows that there is a level of satisfaction with the government’s performance.
He however acknowledged that the nature and quality of jobs is not meeting the aspirations of the country’s young people and they want better quality jobs that will engage them fully.
“That has to be ensured by us improving the investment climate for domestic investors as well as foreign direct investors.”
Kumar highlighted that the Union Budget, presented earlier this month, has taken big steps forward for facilitating and further improving ease of doing business by liberalising the inflows of FDI.
“This budget is a paradigm shift in saying that we will achieve accelerated growth and job generation but with the primacy of private investment. That is what our focus is – that will then generate the jobs.”
Underscoring the potential in the agriculture sector, which has 43 per cent of the workforce, Kumar said investment in the agro-processing sectors and improvement in agricultural yields will help exponentially in job creation.
“Our agriculture, when it is transformed and it begins to have much higher volume of agro-processing, growth rates can easily rise from the current two per cent to four per cent,” he said adding that similarly there is a lot of potential in other sectors such as manufacturing and services.
“There is a lot of potential, there were constrains which are now being removed,” he said, citing the example of Labour Codes introduced in Parliament that will simplify the whole labour compliance situation.
He said at the NITI Aayog, the most important focus is on improving private investment by improving the investment climate, accelerating growth, generating jobs, creating policies for that and at the same time ensuring through social programmes that benefits reach the bottom of the pyramid and to the last person standing in the queue.
“The reforms have been done, the network for taking the benefits of growth to the bottom of the pyramid, to the last of the queue has also been laid. The delivery mechanism has been hugely improved,” he said.
Kumar said that inclusionary aspects of social programmes such as Ayushman Bharat, JAM trinity of Jan Dhan bank account, Aadhaar unique identity number and mobile phone, have been put in place.
“When growth accelerates, you will see the benefits at the bottom of the pyramid.”
Kumar pointed out that efforts are also being made to promote private investment in the mine, mineral and coal sectors because otherwise the country’s import dependence is increasing both for oil and gas as well as for coal even though there are huge reserves in the country.
He noted that the SDG principle of ?Leaving No One Behind? finds resonance with the Government of India’s motto of? Sabka Saath Sabka Vikas [Collective Efforts Inclusive Growth]?, which guides all development initiatives.
“It is a proud moment to say that India has not only mainstreamed the SDGs (Sustainable Development Goals) and Agenda 2030 but is on the way to achieving some of the targets ahead of time,” he said.
Kumar acknowledged that while a lot has been achieved through programmes such as Swachh Bharat Mission and Ayushman Bharat, challenges remain in a country of 1.3 billion people – from a water crisis, shortage of energy in parts of the country, pollution and need to increase female participant rates.
“In the last five years, we have laid the foundation for the benefits of growth to reach the bottom of the pyramid. In the next five years we are focussed on accelerating growth.”
RBI’s change in stance as good as additional 25 bps rate cut: Das
Mumbai: The Reserve Bank of India`s change in monetary policy stance effectively equates to an additional 25-basis-point (bps) rate cut, Governor Shaktikanta Das was reported as saying.
The comments fuelled market speculation over whether the central bank is nearing an end to its current rate-cutting cycle, after three moves this year.Das also said future policy decisions will depend on incoming data, particularly inflation, in an interview with Bloomberg published.
“We have reduced policy rates by 75 bps and we have shifted to accommodative. And shifting of the stance to accommodative itself means a rate cut of 25 bps at least,” Das was quoted as saying.
A senior trader with a primary dealership said: “It looks like he is saying don
t expect more than a 25 bps cut", adding that Das seemed more concerned about a lack of transmission of the RBIs rate cuts so far.
The benchmark 10-year bond yield rose 8 bps to 6.44% after the comments.
While the RBI has cut rates 75 bps since the start of 2019, banks have only eased their key rate by 15-20 bps.
“Given the role the RBI is assigned, inflation is primary target, and given due weightage to the fact that growth momentum has slowed down. For the revival, various stakeholders have to play the role,” Das said.
The RBI`s next policy meeting is on Aug. 7.
GST cut on e-vehicles likely
New Delhi: In a move to encourage domestic manufacturing of e-vehicles, the Goods and Services Tax (GST) Council is likely to decide on lowering tax rates for electric vehicles soon. Besides, the Council will decide the valuation of goods and services in solar power generating systems and wind turbine projects for levying the GST. The decision will come on its July 25 meeting.
Confirming the development, a source in the Finance Ministry said, “The GST Council will take two important decisions this week; the Council may cut tax rates for electric vehicles and evaluate the GST rates on solar power generating systems and wind turbine projects.”
The 36th meeting of the Council, to be chaired by Finance Minister Nirmala Sitharaman, would be conducted through video conferencing with State Finance Ministers.
The Council had, in its June meeting, referred the issue relating to the GST concessions on electric vehicle, electric chargers and hiring of electric vehicles, to an officers’ panel. “The recommendations of the officers panel is likely to be placed before the Council on July 25,” the source said.
For electric vehicles’ promotion, the government has already proposed to the Council to slash GST rates to 5 per cent from 12 per cent. The GST rate for petrol and diesel cars and hybrid vehicles is already at the highest bracket of 28 per cent plus cess.
The Council will also consider tax structure for solar power projects. The Delhi High Court had in May asked the Council to take a re-look at the taxation structure following industry petition.
The government had earlier this year said that for the purpose of taxing solar power projects, 70 per cent of contract value would be treated as goods—taxable at 5 per cent—and the balance 30 per cent as services—taxable at 18 per cent.
The solar industry has been pitching for a different ratio for splitting goods and services for levying GST. Further, the Council may also look at taxation of lotteries.