The International Monetary Fund (IMF) on Tuesday raised the FY24 economic growth forecast for India by 20 basis points to 6.1 per cent, citing the country’s stronger-than-expected growth momentum in the March quarter of FY23.
“Growth in India is projected at 6.1 per cent in 2023, a 0.2 percentage point upward revision compared with the April projection, reflecting momentum from stronger-than-expected growth in the fourth quarter of 2022 as a result of stronger domestic investment,” said IMF in an update to its ‘World Economic Outlook’ (WEO) released in April.
India’s economic growth increased by 6.1 per cent in the March quarter of FY23, beating analysts’ expectations as the expansion in manufacturing and construction surprised on the upside.
Most professional forecasters expect the Indian economy to grow between 6 per cent and 6.5 per cent in FY24. While the Organization for Economic Co-operation and Development (OECD) last month revised upward its forecast to 6 per cent for FY24, the Reserve Bank of India expects the economy to expand at 6.5 per cent in the same financial year.
“India remains an economy that is growing quite strongly. One sixth of total global growth is accounted for by India this year,” Danish Leigh, division chief, Research department at IMF said addressing the media after the release of the WEO update report.
Leigh said inflation in India is projected to remain within the target range of 2-6 per cent. “IMF has an inflation forecast of 4.9 per cent for FY24. Food prices easing has contributed to that as well as the strong action by the Reserve Bank of India. We see the need to continue to balance the pressures of inflation and output to make sure that inflation stays inside the target range as we expect it will,” he added.
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On India banning export of non-basmati white rice, Pierre-Olivier Gourinchas, chief economist at IMF said in the current environment, these types of restrictions are likely to exacerbate volatility on food prices in the rest of the world and can lead to retaliatory measures. “We would certainly encourage the removal of these types of export restrictions because they can be harmful globally,” he added.The IMF also revised upward its global growth outlook by 20 basis points for 2023 to 3 per cent, with upward revision to growth forecasts for the US (20 bps) and UK (70 bps). While Britain’s economy is now not expected to contract, Germany is the only major economy facing recession, with an estimated 0.3 contraction in 2023. “The recent resolution of the US debt ceiling standoff and, earlier this year, strong action by authorities to contain turbulence in US and Swiss banking, reduced the immediate risks of financial sector turmoil. This moderated adverse risks to the outlook. However, the balance of risks to global growth remains tilted to the downside,” said the report.
The IMF, however, cautioned that inflation could remain high and even rise if further shocks occur, including those from an intensification of the war in Ukraine and extreme weather-related events, triggering restrictive monetary policy.
“Financial sector turbulence could resume as markets adjust to further policy tightening by central banks. China’s recovery could slow, in part as a result of unresolved real estate problems, with negative cross-border spillovers. Sovereign debt distress could spread to a wider group of economies. On the upside, inflation could fall faster than expected, reducing the need for tight monetary policy, and domestic demand could again prove more resilient,” it said.
The IMF expected the US Federal Reserve to raise interest rates by more than assumed in the April 2023 WEO to a peak of about 5.6 per cent before reducing them in 2024.
The IMF said recovery in the Chinese economy is losing steam following a reopening boost, while keeping its growth for the country projection unchanged at 5.2 per cent for 2023. "Continued weakness in the real estate sector is weighing on investment, foreign demand remains weak, and rising and elevated youth unemployment (at 20.8 percent in May 2023) indicates labor market weakness.
High-frequency data through June confirm a softening in momentum into the second quarter of 2023,” it added.
The multilateral lender said world trade growth is expected to decline from 5.2 per cent in 2022 to 2 per cent in 2023, before rising to 3.7 per cent in 2024, well below the 2000–19 average of 4.9 per cent. “The decline in 2023 reflects not only the path of global demand, but also shifts in its composition toward domestic services, lagged effects of US dollar appreciation — which slows trade owing to the widespread invoicing of products in US dollars — and rising trade barriers,” it added.