The International Monetary Fund (IMF) on Tuesday raised its forecast for India’s GDP growth for the current fiscal to 6.1 per cent from 5.9 per cent predicted in April due to stronger domestic investments. This upward revision marks a reversal of the IMF’s April decision, when it had cut the growth forecast from 6.1 per cent to 5.9 per cent.
“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 (FY23) as a result of stronger domestic investment,” IMF said.
For the calendar year 2023, the growth projection for the country is 6.6 per cent, it said.
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In the latest update of its World Economic Outlook, the IMF also raised its baseline forecast for world growth in the year to 3 per cent from 2.8 per cent forecast in April. This came amid reduced chances of a recession in the US, where inflation fell to 3 per cent in June, in what could likely make the expected Fed rate rise today the last in the cycle. The world’s largest economy, as per the IMF, will likely grow 1.8 per cent in calendar year 2023, up 0.2 bps from April estimate.
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This is one of the first upward revisions of India’s growth estimate for the current fiscal by any multilateral agency and may tend to mark an alignment of the independent forecasts with the view taken by the government and the Reserve Bank of India (RBI). Both the RBI and the Ministry of Finance have pegged the gross domestic product (GDP) growth at 6.5 per cent for FY24, maintaining that the risks to this growth rate are evenly balanced.
Growth Projections: 2023
USA : 1.8%
Germany : -0.3%
France : 0.8%
Italy : 1.1%
Spain : 2.5%
Japan : 1.4%
UK : 0.4%
Canada : 1.7%
China : 5.2%
India : 6.1%
Russia : 1.5%
Brazil : 2.1%
Mexico : 2.6%
KSA : 1.9%
Nigeria : 3.2%
RSA : 0.3%https://t.co/8pKjgg8udm #WEO pic.twitter.com/AoipC7b84G
— IMF (@IMFNews) July 25, 2023
Last week, the Asian Development Bank retained India’s economic growth forecast for the current fiscal year at 6.4 per cent, citing a recovery in consumption demand in both rural and urban areas, but cautioned that subdued exports due to the global slowdown will be a drag. On June 22, global rating agency Fitch had also raised its India GDP growth forecast to 6.3 per cent from 6 per cent predicted in March. With a stronger-than-expected rate of expansion of 6.1 per cent in January-March, the FY23 GDP growth came in at 7.2 per cent, compared with the advance estimate of 7 per cent.
The global economy continues to gradually recover from the pandemic and Russia’s invasion of Ukraine, the IMF said. In the near term, the signs of progress are undeniable, it said. The latest prediction of 3 per cent growth in world GDP in 2023, however, is still a slowdown from the 3.5 per cent growth reported last year.
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“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,” the IMF said. “This moderated adverse risks to the outlook.”
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The IMF, however, sees continued risks to financial stability amid higher rates, a slower-than-expected recovery in China, debt distress in emerging economies and threats to trade from geo-economic fragmentation. The IMF said global inflation is projected to decline from 8.7 per cent last year to 6.8 per cent this year, a 0.2 percentage point downward revision and be 5.2 per cent in 2024.
“Inflation remains high and continues to erode household purchasing power. Policy tightening by central banks in response to inflation has raised the cost of borrowing, constraining economic activity. Immediate concerns about the health of the banking sector have subsided, but high interest rates are filtering through the financial system, and banks in advanced economies have significantly tightened lending standards, curtailing the supply of credit,” the IMF said.