The International Monetary Fund (IMF) has retained its growth forecast for Asia’s third-largest economy, India, for 2023-24 (FY24). The agency in its report said that two Asian neighbours, India and China, will also account for half of the global economic growth in 2023.
Bright Spot
In its latest update to the biannual World Economic Outlook, the IMF said, "India remains a bright spot. Together with China, it will account for half of global growth this year, versus just a tenth for the US and euro area combined."
Growth in India is set to decline from 6.8 per cent in 2022 (FY23) to 6.1 per cent in 2023 (FY24) before picking up to 6.8 per cent in 2024 (FY25), the global lender said, while citing "resilient domestic demand despite external headwinds".
The Washington-based multilateral lender raised its global growth forecast for 2023 by 20 basis points to 2.9 per cent, holding that the balance of risks remained tilted to the downside, but adverse risks had moderated since its October 2022 report.
India Inflation
The agency has forecast a decline in inflation for India. Inflation in India is expected to decrease from 6.8 per cent in the current fiscal year ending March 31 to 5 per cent the next fiscal year, and then further to 4 per cent in 2024.
Speaking to reporters in Washington, Daniel Leigh, Division Chief of the Research Department of the IMF, said this decrease in inflation reflects the actions of the central bank, according to a PTI report. Global inflation is also expected to fall, from 8.8 per cent in 2022 (annual average) to 6.6 per cent in 2023 and 4.3 per cent in 2024, which is higher than the pre-pandemic levels of around 3.5 per cent.
“Inflation in India as in other countries is expected to come down from 6.8 per cent in 2022 to 5 per cent in 2023 and then 4 per cent coming towards the target in 2024,” Daniel Leigh was quoted as saying. The projected disinflation is a result of declining international fuel and non-fuel commodity prices, as well as the cooling effects of monetary policy tightening on underlying inflation. However, the IMF notes that disinflation will take time, with projected annual average headline and core inflation still above pre-pandemic levels in more than 80 per cent of economies by 2024.
Global Forecast
In advanced economies, annual average inflation is projected to decline from 7.3 per cent in 2022 to 4.6 per cent in 2023 and 2.6 per cent in 2024. Meanwhile, in emerging markets and developing economies, projected annual inflation is expected to decline from 9.9 per cent in 2022 to 8.1 per cent in 2023 and 5.5 per cent in 2024. In low-income developing countries, inflation is projected to moderate from 14.2 per cent in 2022 to 8.6 per cent in 2024.
Opinion
In a blog post, Pierre-Olivier Gourinchas, chief economist and director of the IMF's research department, wrote that global inflation is expected to decline this year but the projected average annual headline and core inflation will still be above pre-pandemic levels in more than 80 per cent of countries even by 2024.
He pointed out that the battle against inflation is far from over, with low inflation-adjusted interest rates and uncertainty about monetary tightening in many countries.
Gourinchas wrote that India remains a bright spot. Together with China, it will account for half of global growth this year, versus just a 10th for the US and euro area combined, he said.
“The inflation news is encouraging, but the battle is far from won. Monetary policy has started to bite, with a slowdown in new home construction in many countries. Yet, inflation-adjusted interest rates remain low or even negative in the euro area and other economies, and there is significant uncertainty about both the speed and effectiveness of monetary tightening in many countries,” Gourinchas wrote.
The US' growth will slow to 1.4 per cent in 2023 as Federal Reserve interest-rate hikes work their way through the economy. Euro area conditions are more challenging despite signs of resilience to the energy crisis, a mild winter, and generous fiscal support, he said. "With the European Central Bank tightening monetary policy, and a negative terms-of-trade shock — due to the increase in the price of its imported energy — we expect growth to bottom out at 0.7 per cent this year," Gourinchas added.