Thaindian News

Washington, Jan 24 (IANS) With the global recovery threatened by intensifying strains in the euro area and fragilities elsewhere, the International Monetary Fund (IMF) has slightly lowered India’s growth projections to 7 percent this year and 7.3 percent in 2013.

The downward revision of India’s growth prospects by 0.5 percentage point in 2012 and 0.8 percentage points in 2013 comes as financial conditions have deteriorated, growth prospects have dimmed, and downside risks have escalated worldwide.

Global output is projected to expand by 3.25 percent in 2012 - a downward revision of about 0.75 percentage point relative to the September 2011 World Economic Outlook (WEO).

This is largely because the euro area economy is now expected to go into a mild recession in 2012 as a result of the rise in sovereign yields, the effects of bank deleveraging on the real economy, and the impact of additional fiscal consolidation, IMF said.

Growth in emerging and developing economies is also expected to slow because of the worsening external environment and a weakening of internal demand, it said.

The most immediate policy challenge is to restore confidence and put an end to the crisis in the euro area by supporting growth, while sustaining adjustment, containing deleveraging, and providing more liquidity and monetary accommodation, the IMF said.

In emerging and developing economies, the near-term focus should be on responding to moderating domestic demand and slowing external demand from advanced economies, while dealing with volatile capital flows, the update said.

Those that suffer from both relatively high inflation and public debt, including India and various economies in the Middle East, may need to take a more cautious stance on any policy easing, IMF said.

Collective action can help set the global economy on a more robust growth trajectory by fostering global demand rebalancing, it said.

(Arun Kumar can be contacted at arun.kumar@ians.in)