The International Monetary Fund (IMF) on Tuesday lowered its economic growth forecast for India by 20 basis points to 5.9 per cent for the financial year 2023-24. The projection is significantly lower than the Reserve Bank of India’s (RBI) projection of 6.5 per cent.
The projection is also the lowest among other multilateral development banks. The World Bank forecast said India will grow at 6.3 per cent, while the Asian Development Bank is projecting 6.4 per cent GDP growth for FY24.
In its World Economic Outlook report released on April 11, the IMF also projected India’s retail inflation to ease to 4.9 per cent in FY24 from 6.7 per cent in FY23.
Current account deficit forecast was also down to 2.2 per cent of GDP from an estimated 2.6 per cent in FY23. India’s per capita income is expected to slow to 4.9 per cent in FY24 from 5.8 per cent in FY23 in terms of purchasing power parity.
The IMF in its report also expects the global economy to grow by 2.8 per cent in 2023 and 3 per cent in 2024, down 10 basis points its from January’s projections.
IMF said, “Tentative signs in early 2023 that the world economy could achieve a soft landing—with inflation coming down and growth steady—have receded amid stubbornly high inflation and recent financial sector turmoil.”
The chief economist of the IMF Pierre-Olivier Gourinchas wrote, “In our latest forecast, global growth will bottom out at 2.8 per cent this year before rising modestly to 3.0 per cent in 2024. Global inflation will decrease, although more slowly than initially anticipated, from 8.7 per cent in 2022.”
“China’s reopened economy is rebounding strongly. Supply chain disruptions are unwinding, while dislocations to energy and food markets caused by the war are receding. Simultaneously, the massive and synchronised tightening of monetary policy by most central banks should start to bear fruit, with inflation moving back towards targets,” Gourinchas added.
“With financial instability contained, monetary policy should remain focused on bringing inflation down, but stand ready to quickly adjust to financial developments. A silver lining is that the banking turmoil will help slow aggregate activity as banks curtail lending. In and of itself, this should partially mitigate the need for further monetary tightening to achieve the same policy stance. But any expectation that central banks will prematurely surrender the inflation fight would have the opposite effect: lowering yields, supporting activity beyond what is warranted, and ultimately complicating the task of monetary authorities,” Gourinchas said.
The IMF raised its forecast for the US economy by 20 basis points to 2.8 per cent in 2023 and 10 basis points to 3 per cent in 2024. The Euro area is expected to grow slightly faster than the other major economies in 2023, but its prediction for 2024 has been lowered by 20 basis points to 1.4 per cent. The second-largest economy in the world, China is anticipated to grow by 5.2 per cent in 2023 and 4.5 per cent in 2024.
“A sharp tightening of global financial conditions—a “‘risk-off” shock— could have a dramatic impact on credit conditions and public finances especially in emerging market and developing economies, with large capital outflows, a sudden increase in risk premia, a dollar appreciation in a rush toward safety, and major declines in global activity amid lower confidence, household spending, and investment. In such a severe downside scenario, global GDP per capita could come close to falling— an outcome whose probability we estimate at about 15 per cent,” IMF noted.
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