The International Monetary Fund may cut 2016 global growth forecasts again in the coming weeks, according to a senior IMF official who yesterday called on policymakers to take comprehensive measures to strengthen their economies.
In January, the Fund projected global growth of 3.4% in 2016 and 3.6% in 2017, having revised down its October forecast for both years by 0.2 percentage point.
“It is very likely that by the time that we arrive at the spring meetings next month there may be a further downward revision in our forecasts,” Jose Vinals, financial counsellor and director of the monetary and capital markets department said during an event organised by the Reserve Bank of India.
His comments echoed a warning last month from Managing Director Christine Lagarde, who said the global economy could be derailed unless policymakers took collective action.
“The cost of inaction will be costly in terms of global growth,” Vinals said.
Expressing concern over China’s slowing growth and “vulnerabilities” in its corporate and financial sector, Vinals said its deleveraging will be key to global financial stability. But he added that he did not foresee a hard landing for the world’s second-largest economy.
Vinals said India needed to prioritise a clean-up of its banks’ balance sheets, while tackling a debt overhang. He also said potential capital outflows posed a risk.
Indian banks’ stressed loans are at 13-year high of 8tn rupees ($119.12bn), constraining banks’ ability to lend and boost economic growth, which is pegged at 7.00-7.75% for 2016/17.
Worried that further rise in bad loans could impede the early recovery, RBI governor Raghuram Rajan has asked banks to provide even for potential bad assets after pledging to clean up lenders’ books by March 2017.
Meanwhile the government has also said it will put in Rs700bn through March 2019 to shore up state-run banks.
Vinals said it is “very important” that India “redouble the efforts to clean up public sector banks’ balance sheets” and tackle its corporate sector debt overhang.