IMF PROJECTIONS - BACK TO THE FUTURE
By Ruma Dubey
The big question is – should we merely celebrate the optimistic forecast which IMF has made for India or should be worry about the not-so-positive forecast for Germany?
Obviously, in this connected world, we cannot live and celebrate only our own victories, we have to look outside or else, it would not take long for our victory to also slip out of our fingers, like holding sand in our hands. We need to constantly look over shoulders and what we see currently does not look good.
First, let’s look at the ‘good-looking’ view and this vista opens up to India. IMF raised its economic growth projection for India from 5.4% projected six months ago to 5.6% now for FY15. And for FY16, it’s estimation was unchanged at 6.4%. But like RBI, its concerns on inflation remain. In the report, IMF has said that though RBI will manage to bring down its retail inflation below the 8% target, it would be an uphill task to reach the next target of 6% by Jan’16. In the world economic growth calendar, IMF has said that India is now a $2 trillion economy, making it the 10th largest in the world; hopefully in 2016, it will overtake Russia and Italy and will catch up with France in 2019.
Well, all this sounds good and makes one swell with some amount of pride. Policy actions, once they start getting implemented, despite the laggard monsoon, India might just be able to make it to the winning post. Yet, the fact remains that if Europe remains a laggard, threats to our economic growth grows. We are largely domestic driven but exports are crucial too. And if Europe falls into recession or deflation, the rest of the world will not remain mere spectators; it might not collapse like the way when USA did but we are sure to feel the blisters of the fall.
And that is why we need to keep an eye behind our shoulders on what’s happening in Europe. Germany, which is like the bulwark of Europe, for August showed a 4% fall in industrial production over July’s growth. This is the biggest monthly fall since the Lehman collapse. Blaming it all on the crisis in the Middle East and Ukraine, IMF cut its estimates for German economic growth in 2014 and 2015 to about 1.5 % for each year.
The IMF says that there is a 40% chance of a Eurozone recession over the coming years and 30% chance of deflation. This is worrisome as Germany is the largest economy of the continent and it has been able to show consistently good growth over past few years even while rest of Europe bled. Why this is not good news for India and rest of the world – Germany is a major exporter and when we see falling growth in its manufacturing sector, it means exports are falling and that in turn is not good for the global economy.
Today, European shares have fallen to a one-and-half month low and crude has slipped to below $91/barrel levels. And while on oil prices, it’s truly a gamblers den there as this price drop has come despite the spread of regional turmoil in Middle East, which should logically normally equate to rising oil prices. Thus it is miraculous that prices have dropped and by so much in the face of such events.
We and the rest of the world are at a very crucial juncture. India is ready to take off while America is showing signs of improvement, with interest rates expected to rise from mid-2016. China, well, it continues to do better than rest of the world but it is also under pressure. And in all this, Europe continues to totter. Let’s see where we all are headed – the world is now in some new unchartered territory, we will see where this road leads to.