India to retain fastest growing economy spot helped by reforms

The IMF's forecast came after the World Bank, in its bi-annual South Asia Economic Focus report released on Sunday, said the economy had recovered from the adverse impact of note ban and GST and is projected to grow by 7.3% in 2018 and 7.5% in 2019.

"However, recapitalisation should be part of a broader package of financial reforms to improve the governance of public sector banks, and banks' debt recovery mechanisms should be further enhanced", the International Monetary Fund said.

While President Trump's tax cuts are expected to boost USA and global growth in the short term, the report warned that those effects will soon wear off as well.

However, Obstfeld warned the stimulus was "largely temporary".

The IMF also noted that political uncertainty in Brazil could jeopardize the adoption of economic reforms that the Fund deems relevant to ensure the projected growth rate.

"Risks beyond the next several quarters clearly lean toward the downside", the report added. Advanced economies are far facing aging population, falling rates of labour force and low productivity growth.

Despite the fact increasing world trade helped boost growth in recent years, there has been a rise in public scepticism about the benefits, leading to a renegotiation of trade deals and increasing friction.

"That major economies are flirting with trade war at a time of widespread economic expansion may seem paradoxical - especially when the expansion is so reliant on investment and trade", Obstfeld said.

"Regulators in China have taken important measures to rein in shadow banking and bring financial activity back onto bank balance sheets, where capital and provisioning requirements provide greater loss absorption capacity than in opaque off-balance-sheet channels", the International Monetary Fund said. Trump has, in turn, ordered the US trade representative to consider targeting up to an additional $100 billion in Chinese imports.

The report cites the market turbulence in early February and into March amid the growing US-China trade dispute, when US stocks stumbled after surging to repeat records in the first weeks of 2018.

The rapid decline should "serve as a cautionary reminder that asset prices can correct rapidly and trigger potentially disruptive portfolio adjustments". It predicts world growth of 3.9 per cent in 2018 and 2019, despite raising its estimates for United States and European Union growth compared to the January edition. But it will ease to 2.5 per cent in 2019.

The forecasts for China and India, key drivers of global growth, were unchanged from January.

India's economy is forecast to grow 7.4% in the current fiscal from 6.7% in FY18 and accelerate further in FY20 to 7.8%, shows the IMF's latest forecast, which is unchanged from its October outlook. Over the medium term, global growth is projected to decline to about 3.7% due to a shift toward inward-looking policies that harm worldwide trade and a potential further buildup of financial vulnerabilities that could give way to rapid tightening of global financial conditions, it warned.

  • Eleanor Harrison