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IMF warns fault lines are widening globally, US growth estimated raised, India faces GDP downgrade

IMF downgrades India's growth forecast to 9.5% down 300 bps from April projection. 

The IMF may not have changed the headline figure of global growth of 6% but the story lies behind the number. The composition of global growth has seen a dramatic change. IMF warns that the fault lines are widening between advanced economies with access to vaccines vs developing economies that are struggling with inoculations. 

IMF chief Gita Gopinath writes in the outlook report that "Prospects for emerging market and developing economies have been marked down for 2021, especially for Emerging Asia. By contrast, the forecast for advanced economies is revised up."

This trend is evident as IMF sees the US economy driving global growth with a 7% print in 2021 and a 4.9% growth in 2022.China as well is projected to see a 8.1% growth followed by 5.7% growth over the next two years. 

The real concern comes in for India that has seen the largest downgrade to growth now down to 9.5% in the current year and 8.5% the next year. 

But this is not the worst case scenario, IMF warns that "a double hit to emerging market and developing economies from worsening pandemic dynamics and tighter external financial conditions would severely set back their recovery and drag global growth below this outlook’s baseline."

The big worry globally is now the inflation monster and the IMF is hoping that from the Fed to the emerging market central bankers will look through this phase and not act in haste as it states, "Central banks should generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying price dynamics."

 

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