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Indian economy likely to grow by 5.7 per cent in 2013: IMF report

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Washington:

Indian economy is projected to grow by 5.7 per cent in 2013 and 6.2 per cent in the next year as against world output growth of 3.25 per cent and 4 per cent respectively during the period under review, says the World Economic Outlook (WEO) report.

The World Economic Outlook is a periodic survey released by The International Monetary Fund (IMF).

Global prospects have improved again but the road to recovery in the advanced economies will remain bumpy, it said.

It noted that what until now was a two-speed recovery, strong in emerging market and developing economies but weaker in advanced economies, is becoming a three-speed recovery.

Emerging market and developing economies are still going strong, but in advanced economies, there appears to be a growing bifurcation between the United States on one hand and the euro area on the other, the WEO said in its latest report released Tuesday.

Growth in emerging market and developing economies is forecast to reach 5.3 percent in 2013 and 5.7 per cent in 2014.

In India it has been projected to be 6.2 per cent in 2014 as against 5.7 per cent in 2013, the report said.

As compared, growth in the United States is forecast to be 1.9 per cent in 2013 and 3 per cent in 2014.

In contrast, growth in the euro area is forecast to be -0.3 per cent in 2013 and 1.1 per cent in 2014.

"The growth figure for the United States for 2013 may not seem very high, and indeed it is insufficient to make a large dent in the still-high unemployment rate," the report said.

"But it will be achieved in the face of a very strong, indeed overly strong, fiscal consolidation of about 1.8 per cent of GDP.

"Underlying private demand is actually strong, spurred in part by the anticipation of low policy rates under the Federal Reserve's 'forward guidance' and by pent-up demand for housing and durables," the report said.

The forecast for negative growth in the euro area reflects not only weakness in the periphery but also some weakness in the core, the outlook said, adding that Germany's growth is strengthening but is still forecast to be less than 1 per cent in 2013.

France's growth is forecast to be negative in 2013, reflecting a combination of fiscal consolidation, poor export performance, and low confidence.

"Most euro area periphery countries, notably Italy and Spain, are expected to have substantial contractions in 2013.

"The process of internal devaluation is slowly taking place, and most of these countries are slowly becoming more competitive," it said.

According to the WEO report, in advanced economies, the recovery will continue to proceed at different speeds.

The main revision relates to the US budget sequester, which lowers the US growth forecast for 2013.

Japan, the report said is forging a path of its own.

"After many years of deflation, and little or no growth, the new government has announced a new policy, based on aggressive quantitative easing, a positive inflation target, fiscal stimulus, and structural reforms," it said.

"This policy will boost growth in the short term, and this is reflected in our forecast of 1.6 per cent growth for 2013.

"Given the high level of public debt, however, embarking on a fiscal stimulus in the absence of a medium-term fiscal consolidation plan is risky; it increases the probability that investors will require a risk premium, and that this will lead in turn to debt unsustainability," the report said.

It also projected a modest improvement in global economic growth rate to 3.3 per cent in 2013, from 3.2 per cent last year on the back of improving trends in emerging markets.

As per the report, growth has already returned to a healthy pace in China, while "external demand, solid consumption, a better monsoon season, and policy improvements are expected to lift activity in India".

As per IMF projections, inflation pressure is projected to remain overall contained in emerging market and developing economies, supported by the recent slowdown and lower food and energy prices.

But inflationary pressure may remain fairly high in some economies, including India's, due to high food prices.

The IMF also flagged off concerns about large fiscal deficits in India, while stressing on an urgent need for fiscal consolidation in various parts of the world. It also listed India among the countries where "structural impediments to growth are already present".

IMF said that policymakers "must carefully consider the risks of policies falling behind the curve and becoming pro-cyclical".

It said the concern is that too much of the recent downturn is attributed to cyclical rather than structural factors.

WEO estimates suggest that the recent downward revision of medium-term prospects in emerging market and developing economies does not reflect a reassessment of medium-term prospects in China alone.

It said growth in the US is forecast to be 1.9 per cent in 2013 and 3 per cent in 2014. In contrast, growth in the euro area is forecast to be -0.3 per cent in 2013 and 1.1 per cent in 2014.

"The growth figure for the United States for 2013 may not seem very high, and indeed it is insufficient to make a large dent in the still-high unemployment rate," the report said.

"But it will be achieved in the face of a very strong, indeed overly strong, fiscal consolidation of about 1.8 percent of GDP.


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