Akash Jha
The IMF has increased its GDP growth prediction for India for 2023-24 from 5.9 percent to 6.1 percent after the shockingly high growth rate in the first three months of the year.
The International Monetary Fund (IMF) revised its growth prediction for India upwards on July 25, attributing the change to the country’s “stronger domestic investment.” The study was released as part of the IMF’s update to its World Economic Outlook (WEO).
On May 31st, data showed that India’s GDP growth for the first quarter of 2023 jumped to 6.1%, easily surpassing all predictions and prompting the statistics ministry to increase its projection for growth in 2022-23 by 20 basis points to 7.25%.
A percentage point is expressed as a decimal, while a basis point is a tenth of a percentage point.
The International Monetary Fund raised its growth forecast for India on July 25, reversing its judgement from April, when it had lowered the outlook for 2023-24 by 20 basis points to 5.9 percent.
Despite the U-turn, the IMF remains less optimistic about India than the government and the Reserve Bank of India (RBI), which both forecast 6.5% GDP growth for 2023-24. As a result, the IMF’s projections are more in line with those of some private sector economists, who see India’s growth slowing sharply to under 6 percent this year due to weakening global growth prospects as a result of the rapid tightening of monetary policy by central banks around the world to rein in high inflation.
The new president of the World Bank, Ajay Banga, has also endorsed India’s economic story, saying that he is “more optimistic about India today as a whole than I have been in a long time” at a G20 conference of finance ministers and central bank governors held earlier this month in Gandhinagar.
The International Monetary Fund’s prediction that India’s GDP will expand by 6.3% in 2024-25 remains unchanged.
Global projections
The IMF’s fresh stance on the global economy is reflected in its revised growth prediction for India, which now projects growth of 3.3 percent in 2023, up from 2.8 percent in April.
| REGION | 2023 GROWTH FORECAST | 2024 GROWTH FORECAST |
| World | 3.0% | 3.0% |
| US | 1.8% | 1.0% |
| Euro area | 0.9% | 1.5% |
| Japan | 1.4% | 1.0% |
| UK | 0.4% | 1.0% |
| China | 5.2% | 4.5% |
| Russia | 1.5% | 1.3% |
| Brazil | 2.1% | 1.2% |
| South Africa | 0.3% | 1.7% |
However, the IMF warned that economic activity remains muted due to the announced interest rate hikes by central banks to combat inflation.
The purchasing power of families is being steadily eroded by persistently high inflation. Central banks’ policy tightening in reaction to inflation has increased borrowing costs, which in turn has stifled economic activity. Banks in developed nations have dramatically tightened lending requirements, reducing the availability of credit, even if “immediate concerns about the health of the banking sector have subsided,” according to the IMF.
The IMF has boosted its projection for global growth in 2023, but has left its forecast for global growth in 2024 unchanged at 3%. This indicates that the IMF anticipates a growth plateau in the near future.
The IMF said that since April, “the balance of risks to global growth remains tilted downward, but adverse risks have receded” due to measures taken to ease banking sector issues in the US and Europe and the resolution of US debt ceiling tensions.
The IMF has raised its growth prediction for the United States for 2023 by 20 basis points, to 1.8 percent, reflecting an upward revision in its outlook for the global economy. However, it reduced the 2024 prediction to 1%, a reduction of 10 basis points.
Meanwhile, the Euro Area saw a 10-basis-point increase in both 2023 and 2024, to 0.9 and 1.5 percent. The previous projections for Chinese economic growth in 2023 and 2024 of 5.2% and 4.5%, respectively, were not revised. The IMF, however, claims that growth in China has shifted in its composition.
While consumption growth has tracked fairly closely to April 2023 WEO forecasts, investment growth has lagged behind. This is mostly attributable to the country’s protracted real estate slump. The IMF noted that “stronger-than-expected net exports have offset some of the investment weakness,” albeit the net exports’ role is being increasingly marginalised due to the slowing global economy.
Inflation concerns
The International Monetary Fund reaffirmed on July 25 what its managing director Kristalina Georgieva has been saying recently, namely that sustained disinflation is still the top goal for most economics.
The IMF urged central banks in countries where high and lasting core inflation persists to send unmistakable signals of their determination to bring inflation down.
Headline inflation is forecast to decline from 8.7% in 2022 to 6.8% in 2023 and 5.2% in 2024, while core inflation is forecast to decline more gradually from 6.5% in 2022 to 6% in 2023 and 4.72% in 2024.
Since the April 2023 WEO, projections for advanced economies have been raised by 0.3 percentage point for 2023 and by 0.4 percentage point for 2024 due to the fact that core inflation is proving more persistent than expected in those regions. Due to lower-than-expected core inflation in China, the IMF has reduced its projections for global core inflation in 2023 by 0.2 percentage points and raised them by 0.4 percentage points for 2024.
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