World Economic Outlook: IMF lowers India's growth projection to 5.9 per cent; improves China's forecast

In a major move on Tuesday, the International Monetary Fund (IMF) lowered India's economic growth projection for the current fiscal to 5.9 per cent from 6.1 per cent earlier.

However, the IMF has high hopes of the Indian economy and said that India would continue to be the fastest-growing economy in the world.

In its annual World Economic Outlook, IMF also lowered the forecast for 2024-25 fiscal (April 2024 to March 2025) to 6.3 per cent from the 6.8 per cent it had predicted in January this year.

The growth rate of 5.9 per cent in the 2023-24 fiscal compares to an estimated 6.8 per cent in the previous year.

However, IMF growth forecast is quite lower than projections by the Reserve Bank of India (RBI). The RBI predicted a 7 per cent GDP growth for 2022-23, and a 6.4 per cent in the current fiscal, which started on April 1.

The government is yet to release full-year GDP numbers for 2022-23.

Despite a significant drop in growth rate projections from 6.8 per cent in 2022 to 5.9 per cent, India continues to be the fastest-growing economy in the world, the World Economic Outlook figures revealed.

While the IMF lowered India's economic growth projection, it has increased China's economic growth projection. 

China's growth rate is projected to be 5.2 per cent in 2023 and 4.5 per cent in 2024 against its growth rate of three per cent in 2022.

On the surface, the global economy appears to be poised for a gradual recovery from the powerful blows of the pandemic and Russia's unprovoked war on Ukraine.

China is recovering strongly after the reopening of its economy. Supply-chain disruptions are unwinding, while the dislocations to energy and food markets caused by the war are receding, said IMF Chief Economist Pierre-Olivier Gourinchas.

"Simultaneously, the massive and synchronous tightening of monetary policy by most central banks should start to bear fruit, with inflation moving back toward its targets.

"In our latest forecast, global growth will bottom out at 2.8 per cent this year before rising modestly to 3.0 per cent in 2024. Global inflation will decrease, although more slowly than initially anticipated, from 8.7 per cent in 2022 to 7.0 per cent this year and 4.9 per cent in 2024," he said.

According to him, this year's economic slowdown is concentrated in advanced economies, especially the euro area and the United Kingdom, where growth is expected to fall to 0.8 per cent and -0.3 per cent this year before rebounding to 1.4 and 1 per cent, respectively.

By contrast, despite a 0.5 percentage point downward revision, many emerging market and developing economies are picking up, with year-end to year-end growth accelerating to 4.5 per cent in 2023 from 2.8 per cent in 2022, he wrote in a blog post.

Gourinchas has argued that more than ever, policymakers need a steady hand and clear communication.

With financial instability contained, monetary policy should remain focused on bringing inflation down, but stand ready to quickly adjust to financial developments.

"A silver lining is that the banking turmoil will help slow aggregate activity as banks curtail lending. In and of itself, this should partially mitigate the need for further monetary tightening to achieve the same policy stance.

"But any expectation that central banks will prematurely surrender the inflation fight would have the opposite effect: lowering yields, supporting activity beyond what is warranted, and ultimately complicating the task of monetary authorities," he said.

(With inputs from PTI)