With India's medium-term prospects remaining positive, the International Monetary Fund (IMF) in its latest Asia and Pacific Regional Economic Outlook report has restated that the country will be the fastest growing major economy in 2018, with a growth rate of 7.4%, and will grow further to 7.8% in 2019. It also said that the nation was recovering from the effects of demonetisation and the introduction of the Goods and Services Tax, and this recovery is expected to be supported by a rebound from transitory shocks as well as robust private consumption.
According to the report, medium-term consumer price index inflation is forecasted to remain within but closer to the upper bound of the Reserve Bank of India's inflation-targeting band of 4% with a (+/-) 2% change. But, it also expresses caution that with increased inflation pressure in India, monetary policy should maintain a tightening bias. It added that the consumer price increase in 2017 was 3.6% and projected it to be 5% in 2018 and 2019. Besides, the current account deficit in FY18 is expected to widen somewhat but should remain modest, financed by robust foreign direct investment inflows.
The report also showed that Bangladesh will be the fastest-growing economy in South Asia, after India, with growth rates of 7% for 2018 and 2019; Sri Lanka is projected to grow at 4% in 2018 and 4.5% in 2019, and Nepal 5% in 2018 and 4% in 2019, while Pakistan, which is grouped with the Middle East, is not covered in the Asia report. Besides, China is expected to grow 6.6% in 2018 and 6.4% in 2019. Overall, Asia continues to be both the fastest-growing region in the world and the main engine of the world's economy.
IMF has said that US President Donald Trump's fiscal stimulus is expected to support Asia's exports and investment, while the Asian region's growth rate was expected to be 5.6% for 2018 and 2019. However, in the medium term, it said that downside risks dominate for the region and these include a tightening of global financial conditions, a shift toward protectionist policies, and an increase in geopolitical tensions. With these uncertainties the IMF urged the countries in the region to follow conservative policies aimed at building buffers and increasing resilience and push ahead with structural reforms.