The International Monetary Fund (IMF) has raised its forecast for India’s GDP growth for the financial year 2023-24 (FY24) from 5.9 percent to 6.1 percent following the country’s stronger-than-expected growth in the fourth quarter of 2022. The global lender also revised its projection for global economic growth in 2023 from 2.8 percent in April to 3 percent in its latest World Economic Outlook on Tuesday.
“Growth in India is forecast at 6.1 percent in 2023, an upward revision of 0.2 percentage point from the April projection, reflecting the momentum of stronger-than-expected growth in the fourth quarter of 2022 on the back of stronger domestic investment,” the IMF said. A basis point is one hundredth of a percentage point.
On May 31, government data showed that India’s GDP growth in the first quarter of 2023-24 was 6.1 percent, beating all expectations and prompting the Ministry of Statistics to revise its growth estimate for the entire fiscal year 2022-23 (FY23) to 7.2 percent, an increase of 20 basis points.
The IMF’s GDP forecast for India for the coming financial year FY24 is in the ballpark of most professional forecasters in the range of 6 percent to 6.5 percent. However, it remains less optimistic about India’s GDP growth compared to the government and the Reserve Bank of India (RBI).
According to a report by Bussines Standard, the Organization for Economic Co-operation and Development (OECD) recently revised India’s growth forecast to 6 percent for FY24, while the Reserve Bank of India (RBI) expects slightly higher growth of 6.5 percent for the same fiscal year.
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In terms of the global economy, the IMF’s most recent economic outlook is slightly higher than what was predicted in the April 2023 World Economic Outlook (WEO). However, it is still considered weak by historical standards. The IMF’s global growth forecast drops from an estimated 3.5 percent in 2022 to 3 percent in both 2023 and 2024.
According to the report, the UK economy is now not expected to contract in 2023, but Germany is the only major economy facing a recession with an estimated contraction of 0.3 percent over the year. The IMF has raised its 2023 growth forecast for the US by 20 basis points to 1.8 percent, but cut its 2024 forecast by 10 basis points to 1 percent. The eurozone received an increase of 10 basis points for both 2023 and 2024 to 0.9 percent and 1.5 percent respectively. China’s growth forecast remains unchanged at 5.2 percent and 4.5 percent for 2023 and 2024, respectively, but there has been a change in the composition of China’s growth.
“The rise in central bank policy rates to fight inflation continues to weigh on economic activity. Global headline inflation is expected to decline from 8.7 percent in 2022 to 6.8 percent in 2023 and 5.2 percent in 2024. Underlying (core) inflation is expected to decline more gradually and inflation forecasts for 2024 have been revised upwards,” the IMF said.
Adding that the recent resolution of the US debt ceiling impasse and, earlier this year, strong action by the authorities to curb the turbulence in the US and Swiss banking systems, reduced the immediate risks of turmoil in the financial sector. This mitigated the adverse risks to the outlook. However, the balance of risks to global growth remains on the downside.
“Inflation could remain high and even rise if further shocks, including an intensification of the war in Ukraine and extreme weather events, lead to a more restrictive monetary policy. Financial sector turbulence could resume as markets adjust to further policy tightening by central banks. China’s recovery could slow, partly due to unresolved real estate issues, with negative cross-border spillovers. The need for tight monetary policy and domestic demand could slow may once again prove to be more resilient,” the IMF said.
A restrictive stance – with real rates above neutral – is needed until there are clear signs that underlying inflation is cooling.
“With budget deficits and government debt above pre-pandemic levels, credible medium-term fiscal consolidation is in many cases needed to restore fiscal space and ensure debt sustainability,” the IMF said.