IMF cuts India’s growth forecast to 5.9% from 6.1%: Indian economy to remain one of the fastest growing in the world

By: Yash Gupte

According to the IMF’s World Economic Outlook, global growth will bottom out at 2.8 percent this year before rising modestly to 3.0 percent in 2024

The International Monetary Fund (IMF) revised its estimate of India's economic growth downward by 0.2 percentage points from January to 5.9 percent for the current fiscal year, which runs from April 2023 to March 2024. The IMF revised its previous forecast for India's economic growth rate for the next fiscal year downward by 0.5 percentage points to 6.3 percent.  The IMF kept a positive perspective on India and justified the downward revision as an adjustment for historically better-than-expected figures. Anne-Marie Gulde-Wolf, Deputy Director for Asia and Pacific Department, IMF said "The Indian economy continues to perform well and remains the fastest growing Asian economy, and one of the fastest growing in the world.”

She further stated that the IMF had revised its forecast for India's growth downward to take into account the results of the most current data. The statistics were downgraded as a result of a predicted decrease in consumption growth. Gulde-Wolf expressed optimism that China and India will serve as major economic engines in the future and that they will continue to be South Asian growth engines. They have the ability to stimulate global economy through commerce, investment, and consumption. She added that the IMF expects China's growth to accelerate to 5.2 percent in 2023, from 3.0 in 2022. High growth of China, will also generate positive spillovers around the world.

According to the IMF’s World Economic Outlook, global growth will bottom out at 2.8 percent this year before rising modestly to 3.0 percent in 2024. Global inflation will decrease, although more slowly than initially anticipated, from 8.7 percent in 2022 to 7.0 percent this year and 4.9 percent in 2024. Notably, emerging market and developing economies are already powering ahead in many cases, with growth rates jumping from 2.8 percent in 2022 to 4.5 percent this year. The slowdown is concentrated in advanced economies, especially the euro area and the United Kingdom, where growth is expected to fall to 0.7 percent and –0.4 percent, respectively, this year before rebounding to 1.8 and 2.0 percent in 2024.

As per the World Economic Outlook, the advanced economies are expected to grow at a rate of 1.1 percent in 2023 and 1.6 percent in 2024. Talking about the emerging markets and developing economies, they are estimated to grow at a rate of 4.5 percent in 2023 and 4.4 percent in 2024. The chart below shows the IMF forecast of the GDP growth of six advanced economies and six emerging markets and economies.

Source: International Monetary Fund

In case of the advanced economies, the United States is expected to grow at a fastest rate of 1.6 percent in 2023. US is followed by Canada as the country is expected to grow at a rate of 1.5 percent. Among the advanced countries, the United Kingdom comes in the list of the countries which are expected to register a negative growth. In the case of advanced countries, United Kingdom and Germany are the only countries that are expected to record a negative growth rate. UK is expected to witness a negative growth rate of -0.30 percent in 2023 before performing better in 2024 while Germany is estimated to witness a negative growth rate of -0.1 percent. UK’s economy is expected to grow at a rate of 1 percent in 2024 while Germany’s economy is expected to grow at a rate of 1.1 percent. UK and Germany are followed by France and Italy as the economy of these European countries is expected to grow at a rate of 0.7 percent.

Coming over to the emerging markets and developing countries, South Africa and Russia are expected to grow at the slowest pace followed by Brazil. Despite all the concerns, India is expected to be the fastest growing economy in the world.

According to Gulde-Wolf, who focused on the major difficulties that the Asian nations will soon face, inflation would be a particularly difficult problem for their economy. Despite being in better shape than the rest of the world, inflation has continued to exceed central banks' targets. Global headline inflation is set to fall from 8.7 percent in 2022 to 7.0 percent in 2023 on the back of lower commodity prices, but underlying (core) inflation is likely to decline more slowly. Inflation’s return to target is unlikely before 2025 in most cases.

The IMF has projected India’s inflation to slow to 4.9 percent in the current year and further to 4.4 in the next fiscal year. IMF’s forecast is lower than the RBI’s projection. The central bank had predicted 7 percent GDP growth for FY 2022-23 and 6.4 percent in the ongoing fiscal.

As per IMF, most countries will avoid recession in 2023 despite the COVID-19 pandemic lingering and tightening financing conditions as the Russia-Ukraine war continues.