The International Monetary Fund (IMF) has raised India's GDP growth forecast for the financial year 2023-24 (FY24) to 6.1 per cent from earlier 5.9 per cent after the country's stronger-than-expected growth in the fourth quarter of 2022. The global lender in its latest World Economic Outlook on Tuesday also revised its projection for the growth of the global economy in 2023 to 3 per cent from 2.8 per cent projected in April.
"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," the IMF said. One basis point is one-hundredth of a percentage point.
On May 31, the government data showed that India's GDP growth in the first quarter of 2023-24 reached 6.1 per cent, surpassing all expectations and leading the statistics ministry to revise its growth estimate for the entire fiscal year 2022-23 (FY23) to 7.2 per cent, an increase of 20 basis points.
The IMF's GDP forecast for India for the upcoming financial year FY24 lies in the band of most professional forecasters within the range of 6 per cent to 6.5 per cent. However, it remains less optimistic about India's GDP growth compared to the government and the Reserve Bank of India (RBI).
As per a report by Bussines Standard, the Organization for Economic Co-operation and Development (OECD) recently revised India's growth forecast to 6 per cent for FY24, while the Reserve Bank of India (RBI) expects a slightly higher growth at 6.5 per cent in the same financial year.
As for the global economy, the latest IMF economic outlook forecast is slightly higher than what was predicted in the April 2023 World Economic Outlook (WEO). However, it is still considered weak when compared to historical standards. The IMF global growth projection fall from an estimated 3.5 per cent in 2022 to 3 per cent in both 2023 and 2024.
As per the report, while Britain’s economy is now not expected to contract in 2023, Germany is the only major economy facing recession with an estimated 0.3 per cent contraction during the year. The IMF has raised its growth forecast for the US in 2023 by 20 basis points to 1.8 per cent but reduced the forecast for 2024 by 10 basis points to 1 per cent. The Euro area received a 10-basis-point increase for both 2023 and 2024 to 0.9 per cent and 1.5 per cent, respectively. China's growth forecast remains unchanged at 5.2 per cent and 4.5 per cent for 2023 and 2024, respectively, but there has been a change in the composition of Chinese growth.
"The rise in central bank policy rates to fight inflation continues to weigh on economic activity. Global headline inflation is expected to fall from 8.7 per cent in 2022 to 6.8 per cent in 2023 and 5.2 per cent in 2024. Underlying (core) inflation is projected to decline more gradually, and forecasts for inflation in 2024 have been revised upward," the IMF said.
Adding that 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.
"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 more 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," IMF said.
A restrictive stance — with real rates above neutral — is needed until there are clear signs that underlying inflation is cooling.
“With fiscal deficits and government debt above pre-pandemic levels, credible medium-term fiscal consolidation is in many cases needed to restore budgetary room for manoeuvre and ensure debt sustainability,” the IMF said.