India Slowdown Main Factor in Global Downgrade: Gita Gopinath

IMF Chief  Economist Gita Gopinath.

(Photo altered by The Quint)

Speaking with BloombergQuint at the World Economic Forum in Davos, India-born IMF Chief Economist Gita Gopinath said that the downward revision of global growth forecast was largely due to the economic slowdown in India.

“We’ve had a significant downward revision for India, over a 100 basis point for each of these years. It’s probably the most important factor for the overall global downgrade of 0.1 percent,” she said.

IMF has lowered growth estimate for India to 4.8 percent for 2019, citing stress in the non-bank financial sector and weak rural income growth as the major factors.

It expects growth to be 5.8 percent in 2020 and rise to 6.5 percent in 2021. For the world economy, IMF sees growth at 3.3 percent in 2020 compared with 2.9 percent in 2019.

Signs of Improvement

Gopinath said that there were signs of improvement this year after the “synchronised” global slowdown towards the end of 2019.

“We’re seeing some high-frequency indicators especially with manufacturing and global trade. There seem to be some signs of stabilisation. But we aren’t seeing a recovery in investment yet,” she said.

She added that phase one of the US-China trade deal has reduced uncertainty with regard to trade policy, but risks aren’t off the table.

China's growth has been revised upward by 0.2 percent to 6 percent for 2020, reflecting the trade deal.

She also drew attention to the rising global inequality, “We have seen wage growth in the last two or three years and it has been quite sustained. But it’s certainly not growing fast enough that real incomes are growing substantially. And this is an important issue for the world to grapple with.”

Indian Govt Should Keep Fiscal Room in Mind: Gopinath

For India, Gopinath said that the government take steps keeping the fiscal room in mind and focus on public investment.

“In the case of India, it is important that the fiscal targets are met, at least from a medium-term perspective. It is also important that when spending is done, it’s done on public investment as opposed to consumption spending,” 

Gita Gopinath, Chief Economist, IMF

She also said that the weakness in credit growth is one of the challenges that the government will have to address.

“How do you get credit growth back up while making sure at the same time that there will not be a second round of non-performing assets in the future? I think that’s the balance the government has to work towards,” she said.

She added that India is projected for growth and “that recovery is based on stimulus that’s already in the system, without any further stimulus.”

India is set to unveil its Union Budget for the coming fiscal year.

(With inputs from BloombergQuint)