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The International Monetary Fund (IMF) lifted its 2023-24 growth projection for India to 6.3% from its July estimate of 6.1%, citing “stronger-than-expected consumption” during the June quarter. In contrast, the agency expects global growth of 3% in 2023 and 2.9% in 2024, with advanced economies expanding by 1.5% in 2023 and 1.4% in 2024.
The Washington-based agency presents India’s economic growth forecast on a fiscal year basis while it uses the calendar year for other economies.
IMF’s growth estimate for India is a notch below the Reserve Bank of India’s (RBI) forecast of 6.5% gross domestic product (GDP) growth in the current fiscal.
The Indian economy recorded a 7.8% growth during the June quarter. Capital formation, a proxy for investments, and private consumption expenditure, an indicator of consumption demand, reported growth rates of 8% and 6%, respectively, during this period. The gross goods and service tax (GST) revenue, an indicator of consumption, collected during June rose 12% annually to ₹1.6 trillion.
Other multilateral agencies, such as the Asian Development Bank (ADB), expect India to grow 6.4% during 2023-24.
In its latest World Economic Outlook (WEO), IMF raised its US growth projection for 2023 by 0.3 percentage points, compared with its July update, to 2.1%, while cutting China’s 2023 growth forecast to 5% from the earlier forecast of 5.2%.
According to the IMF forecast, the Euro Area will grow 0.7% in 2023 and 1.2% in 2024.
On the global economy, IMF’s chief economist Pierre-Olivier Gourinchas said the latest IMF forecast has increased the likelihood of a “soft landing”. The current global growth forecast is the “slowest in a decade”. “The global economy is limping along, not sprinting,” he said.
Gourinchas said economic activity has slowed but not stalled despite the war disrupting energy and food markets and unprecedented monetary tightening to combat decades-high inflation. “Even so, growth remains slow and uneven, with widening divergences.”
From the Indian perspective, RBI has kept the repo rate unchanged at 6.5% since April after raising it by 250 basis points (2.5%) since May 2022. RBI’s decision has come against the backdrop of rising inflation. India’s retail inflation fell to 6.83% in August from a 15-month high of 7.44% in July due to the easing of food prices.
On Tuesday, IMF said 81% of global economies, including the world’s 10 largest, have seen a decline in their medium-term growth prospects.
The five emerging market economies—Brazil, China, India, Indonesia and Russia—have contributed about 0.9% percentage points to the decline in medium-term global growth prospects between 2008 and 2023, the IMF report added.
The WEO said the Russian invasion of Ukraine in 2022 caused “major fragmentations” in commodity markets, leading to a surge in measures restricting commodity trade, which has further resulted in a widening of price differentials across markets for select commodities and declining FDI (foreign direct investment) flows in commodity sectors.
“Critical minerals for the energy transition and some highly traded agricultural goods are highly vulnerable in the event of fragmentation,” the report said, warning that commodity price volatility could intensify the incentives for producers to switch geopolitical allegiances, which could result in volatile inflation dynamics, making monetary policy more complex.
In its global financial stability report, also released on Tuesday, IMF said central banks in advanced economies may need to keep the monetary policy tighter in the longer term to keep inflation in control.
On emerging market economies, IMF cautioned that despite rate hikes proving beneficial, discrepancies across the region could lead to widening “divergence of inflation” and mark the beginning of the “desynchronization of the global monetary policy”.
“Emerging markets such as Chile, Hungary, India, Mexico and Poland has also seen notable equity price increases, consistent with the appreciation of most major emerging market currencies in the first half of the year,” IMF’s global financial stability report said.
“Upside surprises to the inflation outlook would challenge this soft-landing narrative, resulting in a potentially sharp repricing of assets,” it added.
In its global financial stability report, the IMF cautioned the high-interest rate regime for a long time could lead to bank stress, adding that about 30% of the world’s biggest banks would be vulnerable to stress if the global economy entered a period of low growth and high inflation.
On the climate front, the IMF said that a broad mix of structural and financial policies is needed to create an attractive investment environment for private capital to support climate finance needs in EMDEs (emerging markets and developing economies)
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