By Ritu Singh
The International Monetary Fund (IMF) has raised India’s growth projection for the current financial year on the back of a stronger-than-expected consumption during April-June quarter.
“Growth in India is projected to remain strong, at 6.3 percent in both 2023 and 2024, with an upward revision of 0.2 percentage point for 2023, reflecting stronger-than-expected consumption during April-June,” the IMF said in its latest World Economic Outlook report for October, released on Tuesday during the ongoing IMF Annual Meetings in Marrakech, Morocco.
This compares with Reserve Bank of India’s projection of a 6.5 percent GDP growth for India for the current financial year, 0.2 percentage points higher than IMF’s latest forecast.
Over the medium term, the fund has forecast a 6.3 percent GDP growth for India by FY29. India’s consumer price inflation (CPI) is seen easing from an average of 6.7 percent in 2022 to 5.5 percent in 2023 and 4.6 percent in 2024, the IMF said.
The global economy is limping along, not sprinting, the International Monetary Fund (IMF) said in its report. It expects the world economic growth to slow from 3.5 percent in 2022 to 3 percent this year and 2.9 percent next year, a 0.1 percentage point downgrade for 2024 from its estimates released in July.
“The global economy continues to recover from the pandemic, Russia’s invasion of Ukraine and the cost-of-living crisis. In retrospect, the resilience has been remarkable. Despite war-disrupted energy and food markets and unprecedented monetary tightening to combat decades-high inflation, economic activity has slowed but not stalled. Even so, growth remains slow and uneven, with widening divergences,” Pierre-Olivier Gourinchas, the Economic Counselor and Director of the Research Department at IMF said in a blog.
For advanced economies, the expected slowdown is from 2.6 percent in 2022 to 1.5 percent in 2023 and 1.4 percent in 2024, amid stronger-than-expected US momentum but weaker-than-expected growth in the euro area. Emerging market and developing economies are projected to have growth modestly decline, from 4.1 percent in 2022 to 4.0 percent in both 2023 and 2024, with a downward revision of 0.1 percentage point in 2024, reflecting the property sector crisis in China, the fund said in its report.
“Forecasts for global growth over the medium term, at 3.1 percent, are at their lowest in decades, and prospects for countries to catch up to higher living standards are weak,” said the IMF.
Three forces are at play, noted Pierre-Olivier Gourinchas in a blog:
1. The recovery in services is almost complete and the strong demand that supported services-oriented economies is now softening.
2. Tighter credit conditions are weighing on housing markets, investment, and activity, more so in countries with a higher share of adjustable-rate mortgages or where households are less willing, or able, to dip into their savings. Firm bankruptcies are increasing in some economies, although from historically low levels. Countries are now at different points in their hiking cycle: advanced economies (except Japan) are near the peak, while some emerging market economies that started hiking earlier, such as Brazil and Chile, have already started easing.
3. Inflation and economic activity are shaped by last year’s commodity price shock. Economies heavily dependent on Russian energy imports saw a steeper increase in energy prices and a sharper slowdown. The passthrough from higher energy prices played a large role in driving core inflation higher in the euro area—unlike the United States, where core inflation pressures instead reflect a tight labor market.
Risks to the outlook are more balanced than they were six months ago, on account of the resolution of US debt ceiling tensions and Swiss and US authorities’ having acted decisively to contain financial turbulence, the report pointed. While IMF said the likelihood of a hard landing has receded, it warned that the balance of risks to global growth remains tilted to the downside.
Global inflation is forecast to decline steadily, from 8.7 percent in 2022 to 6.9 percent in 2023 and 5.8 percent in 2024. But the forecasts for 2023 and 2024 are revised up by 0.1 percentage point and 0.6 percentage point, respectively, and inflation is not expected to return to target until 2025 in most cases.
Policies
Under IMF’s baseline scenario, inflation continues to recede as central banks maintain a tight stance. With many countries near the peak of their tightening cycles, little additional tightening is warranted, the Fund said in its report. However, it warned that easing prematurely would squander the gains achieved in the past 18 months. “Once the disinflation process is firmly on its way and near-term inflation expectations are decreasing, adjusting the policy rate downward will allow the monetary policy stance, that is, the real interest rate, to remain unchanged until inflation targets are in sight,” it said.
The IMF also suggests that higher long-term growth can be achieved through structural reforms, especially those related to governance, business regulations, and the external sector. Multilateral cooperation is encouraged to promote better growth outcomes and global financial stability, with the IMF playing a crucial role.