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IMF raises India’s FY24 forecast to 6.1%

The International Monetary Fund (IMF) bumped up India’s growth forecast for FY24, citing strong domestic investment while cautioning that the global economy is not “out of the woods” yet and that the world’s battle against inflation is far from over.

The multilateral lender expects India to clock 6.1% growth in FY24, up from 5.9% estimated in April. The FY25 forecast is unchanged at 6.3%.

“Growth in India is projected at 6.1% 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,” the IMF stated in its July update of the World Economic Outlook (WEO).

India’s economy grew by a better-than-expected 6.1% in the March quarter, lifting FY23 expansion to a strong 7.2%.

The IMF’s projection is lower than the Reserve Bank of India’s estimate of 6.5% growth in FY24. The Asian Development Bank, in its update released last week, also retained India’s growth forecast at 6.4%, citing a recovery in consumption demand in rural and urban areas.

Global economy
The Fund said the global economy continues to gradually recover from the pandemic and Russia’s invasion of Ukraine.

The Covid-19 health crisis is officially over and supply-chain disruptions have returned to pre-pandemic levels, it said, adding that economic activity was resilient in the first quarter and the US banking turmoil remains contained.

“The resolution of US debt ceiling tensions has reduced the risk of disruptive rises in interest rates for sovereign debt, which would have increased pressure on countries already struggling with increased borrowing costs,” it stated.

Under the baseline forecast, the global economy is seen growing 3% in 2023, a 0.2 percentage point upgrade to April projections. In 2022, the world economy expanded by 3.5%.

“The balance of risks to global growth remains tilted downward, but adverse risks have receded since the publication of the April 2023 WEO,” the IMF stated.

Global activity is losing momentum because of monetary tightening, slowing recovery in China and high core inflation.

“The global recovery from the Covid-19 pandemic and Russia’s invasion of Ukraine is slowing amid widening divergences among economic sectors and regions,” the IMF said.

A faster-than-expected slowing in core inflation, declining job vacancies, strengthening consumption and China’s rebound are upside risks to the global forecast.

The IMF flagged geopolitical threats to the world economy.

“The rise of geo-economic fragmentation with the global economy splitting into rival blocs, will most harm emerging and developing economies that are more reliant on an integrated global economy, direct investment, and technology transfers,” said Pierre-Olivier Gourinchas, IMF economic counselor and director of research, in a blog.

Inflation concerns
The IMF raised concerns with regard to the price trajectory across economies, flagging slow moderation in core inflation.

“Inflation is easing in most countries but remains high, with divergences across economies and inflation measures,” it stated.

Global headline inflation is set to decline to 6.8% in 2023 from 8.7% last year, whereas core inflation will slow to 6% from 6.5% earlier, according to the IMF.

“El Niño could bring more extreme temperature increases than expected, exacerbate drought conditions, and raise commodity prices,” the report stated.

India’s retail inflation in June rose to a three-month high of 4.81% in June owing to a vegetable price shock.

“Central banks should remain focused on restoring price stability and strengthening financial supervision and risk monitoring,” the IMF said.

The Reserve Bank of India Monetary Policy Committee will likely hold the repo rate at 6.5% for a third consecutive time at its meeting in August.

Policy suggestions
Central banks in economies with elevated and persistent core inflation should continue to clearly signal their commitment to reducing inflation, the IMF urged.

It called for fiscal consolidation, reforms to loosen labor markets and a push for building resilience to climate change.

“Insufficient progress on the climate transition will leave poorer countries more exposed to increasingly severe climate shocks and rising temperatures, even as they account for a small fraction of global emissions,” Gourinchas added, pushing for more multilateral cooperation.


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