India’s economy is projected to grow at 7.1 per cent in the fiscal year 2020 on the back of strong domestic consumption and investment but the GDP growth is a downward revision from the 7.4 per cent estimated in January this year, according to a report by the United Nations.

The World Economic Situation and Prospects (WESP) 2019 Mid-year Update, released here Tuesday, said that the Indian economy, which generates two-thirds of the regional output in South Asia, expanded by 7.2 per cent in 2018.

“Strong domestic consumption and investment will continue to support growth, which is projected at 7.0 per cent in 2019 and 7.1 per cent in 2020,” the report said.

The estimates for India, however, reflect a downward revision from the projections made in the World Economic Situation and Prospects 2019 report released in January this year. That report had estimated that India would grow at 7.6 per cent in the fiscal year 2019 and 7.4 per cent in 2020. It must be noted that despite the downward revisions, India remains the fastest growing major economy in the world, ahead of China.

The WESP mid-year update noted that growth projections for 2019 have been revised downward in all major developed economies. The growth outlook for many developing economies has also weakened, it said, adding that despite downward revisions, growth in India remains “strong” amid robust domestic demand.

“The global growth outlook has weakened amid unresolved trade tensions and elevated international policy uncertainty. Across both developed and developing countries, growth projections for 2019 have been downgraded. Alongside a slowdown in international trade, business sentiments have deteriorated, casting a cloud on investment prospects,” the report said.

World gross product growth is now expected to moderate from 3.0 per cent in 2018 to 2.7 per cent in 2019 and 2.9 per cent in 2020, reflecting a downward revision from WESP 2019 forecast released in January. In tandem with slowing industrial production, international trade activity has visibly weakened, reflecting in part unresolved trade disputes between the United States of America and China.

In the US, the growth momentum is projected to moderate as headwinds from trade policy are compounded by the waning effects of fiscal stimulus. Growth in China is projected to moderate gradually from 6.6 per cent in 2018 to 6.3 per cent in 2019 and 6.2 per cent in 2020.

In China, recent monetary and fiscal stimulus measures are expected to bolster domestic demand, partially offsetting the adverse impact of trade tariffs on overall growth. Nevertheless, these measures could also exacerbate domestic financial imbalances, raising the risk of a disorderly deleveraging process in the future.

South Asia remains on a strong growth path, even as forecasts have been revised downward. Following an expansion of 5.7 per cent in 2018, GDP growth is estimated at 5.0 per cent in 2019 and 5.8 per cent in 2020.

However, across the region, output continues to be constrained by infrastructure bottlenecks. The report added that India’s exports remain more robust, as around half of exports are destined for faster-growing Asian markets, while geopolitical risks continue to confront Afghanistan and Iran.

The slowdown in global economic activity has triggered a shift towards easier monetary policy stances across many developed and developing economies, it said, adding that this shift is taking place in an environment of subdued global inflation, amid weakening demand and a moderate outlook for global commodity prices.

Further, the report said that given increased uncertainty over growth prospects, a few large developing economies, including Egypt, India and Nigeria, reduced their key policy rates. The report projects that with major downside risks prevailing, there is a significant possibility of a sharper slowdown or more prolonged weakness in the global economy that could impact development progress.

“A further escalation of trade disputes among the world’s largest economies poses a significant risk for both short and medium-term global growth prospects. Alongside unresolved trade tensions with China, the United States recently signalled its intention to impose additional tariffs on the European Union, primarily targeted at the aircraft and food industries,” the report said.

The impact of a spiral of additional tariffs and retaliation would not only dampen the growth of these large economies but also have severe spillover effects on the developing economies, particularly those with high export exposure to the impacted economies.