The International Monetary Fund (IMF) revised upwards India’s growth forecast from 8.8 per cent in April to about 9.5 per cent for fiscal 2010, citing favourable financing conditions which will fuel investments and robust corporate profits as the reasons for doing so.

In its July update on World Economic Outlook the Fund, however, said India’s growth would again moderate to 8.5 per cent in fiscal 2011. The strong domestic demand was a reason for India’s high growth rate, it said.

In the last fiscal, the Indian economy expanded by 7.4 per cent.

According to the IMF, the world economy grew at an annualised rate of more than five per cent during the first quarter of 2010, and attributed this to robust growth in Asia.

The multilateral body projected world growth at about 4.5 per cent in 2010 and 4.25 per cent in 2011.

It noted that Asia’s strong recovery from the global financial crisis continued in the first half of 2010, despite renewed tension in global financial markets.

The Fund forecast Asia’s GDP growth at 7.5 per cent for 2010, from seven per cent projection made in April’s World Economic Outlook. On the downside, the IMF said despite the stronger than expected first half recovery, uncertainties surround sovereign risks which could hamper economic outlook. It said downside risks have risen sharply.

The outcome will depend on how Europe deals with its fiscal problems, how advanced countries proceed with fiscal consolidation and how emerging market countries balance their economies.

The Fund said policy efforts in advanced economies should focus on credible fiscal consolidation, notably measures that enhance medium run growth prospects such as reforms to entitlement and tax systems.

It said economic activity in Asia has been sustained by continued buoyancy in exports and strong private domestic demand.

About prospects in 2011, the IMF said when the inventory cycle will have run its full course and the stimulus is withdrawn in several countries, Asia’s GDP growth is expected to settle to a more moderate but also more sustainable rate of about 6.75 per cent.

In China, given the strong rebound in exports and resilient domestic demand so far this year, the economy is now forecast to grow by 10.50 per cent in 2010, before slowing to about 9.50 per cent in 2011, when further measures are expected to slow credit growth and maintain financial stability.

Both Newly Industrialised Asian Economies and Association of South East Asian Nations (ASEAN) economies are expected to grow by about 6.50 per cent in 2010 as a result of surging exports and private domestic demand, before moderating to 4.75 per cent and 5.50 per cent, respectively, in 2011, it said.

The Fund said sovereign risks in parts of the euro area have materialised and spread to the financial sector there, threatening to spill over to other regions and re-establish an adverse feedback loop with the economy.

UNI