Raising concern over more sluggish investment recovery, the International Monetary Fund (IMF) has marginally lowered India's growth forecast to 7.4 per cent for 2016 and 2017, a drop of 0.1 per cent from its previous forecast of 7.5 per cent released in April, though it retained its tag for India as the world's fastest-growing major economy and described India as a 'bright spot' against the backdrop of a gloomy global economy. It pared global growth by an identical amount while declaring Brexit as a “spanner” in the global economic recovery.
The global lending agency in its latest World Economic Outlook (WEO) update said that in India, economic activity remains buoyant, but the growth forecast for 2016-17 was trimmed slightly, reflecting a more sluggish investment recovery. India's economy grew 7.6 per cent last fiscal and the government is hoping for 8 per cent growth this fiscal year on the back of a good monsoon though private investments and demand are yet to bounce back.
Talking about the global economy, the report forecast it to grow by 3.1% in 2016 compared with 3.2% estimated in the April WEO, with Brexit responsible for the reduction. China's forecast has been retained at 6.6% and 6.2% for 2016 and 2017, respectively. The outlook worsens for advanced economies while it remains broadly unchanged for emerging markets and developing economies.
IMF in its report cautioned that 'the real effects of Brexit will play out gradually over time, adding elements of economic and political uncertainty that could be resolved only after many months' and this uncertainty could cause markets to react more negatively to financial shocks. The report further stated that the outcome of the UK vote to leave European Union (EU), which surprised global financial markets, implies the materialisation of an important downside risk for the world economy.