August 13, 2022
The IMF Lowers India's Growth Forecast To 7.4% While Warning That The World's Three Largest Economies Are Slowing

According to the latest World Economic Outlook report released on Tuesday, the IMF has lowered India’s growth forecast by 0.8 percentage points for this year.

IMF cuts India’s growth estimate to 7.4% while indicating world’s three biggest economies are stalling

The International Monetary Fund (IMF) has lowered India’s growth forecast by 0.8 percentage points for this financial year and the next amid unfavourable external conditions, its latest World Economic Outlook report released on Tuesday showed.

India’s economy is now projected to grow by 7.4% in FY23, 80 basis points lower than IMF’s April projection of 8.2%. 80 basis points have also cut India’s FY24 growth forecast to 6.1%.

“For India, the revision reflects mainly less favourable external conditions and more rapid policy tightening,” the report said.

The IMF’s report stated that downgrades for China, the United States, and India are pushing lower revisions to global growth in 2022-23. According to the IMF, this reflects the manifestation of downside risks indicated in the April 2022 World Economic Outlook.

The IMF reduced its global growth forecast for the current fiscal year by 40 basis points, expecting growth to fall to 3.2% from 6.1% last year. It will slow to 2.9% in the coming fiscal year.

“The global economy, still reeling from the pandemic and Russia’s invasion of Ukraine, is facing an increasingly gloomy and uncertain outlook. Many of the downside risks flagged in our April World Economic Outlook have begun to materialize,” the IMF said.

According to the report, higher-than-expected inflation, particularly in the United States and key European nations, is causing global financial conditions to tighten. China’s decline has been worse than expected because of COVID-19 breakouts and lockdowns, and there have been additional negative spillovers from the Ukraine conflict. As a result, worldwide output fell in the second quarter of 2018.

The prediction for advanced economies’ growth has been reduced by 80 basis points to 2.5% in 2022 and 100 basis points to 1.4% in 2023. The growth prediction for Emerging Markets and Developing Economies has also been reduced by 20 basis points for 2022 to 3.6%, and by 50 basis points for 2023 to 3.9%.

Also Read: Russia Will Stop Supplying Gas To Europe, A Blow To Nations For Backing Ukraine

“Lower growth earlier this year, reduced household purchasing power, and tighter monetary policy drove a downward revision of 1.4 percentage points in the United States. In China, further lockdowns and the deepening real estate crisis have led growth to be revised down by 1.1 percentage points, with major global spillovers. And in Europe, significant downgrades reflect spillovers from the war in Ukraine and tighter monetary policy,” said the report.

Global inflation has been revised up due to rising food and energy prices, as well as persistent supply-demand imbalances, and is expected to reach 6.6 per cent in advanced economies and 9.5 per cent in emerging market and developing economies this year, representing upward revisions of 0.9 and 0.8 percentage points, respectively, according to the IMF.

The research also stated that the risks to the forecast are heavily skewed to the downside.

“The war in Ukraine could lead to a sudden stop of European gas imports from Russia; inflation could be harder to bring down than anticipated either if labor markets are tighter than expected or inflation expectations unanchor; tighter global financial conditions could induce debt distress in emerging market and developing economies; renewed COVID-19 outbreaks and lockdowns, as well as a further escalation of the property sector crisis, might further suppress Chinese growth; and geopolitical fragmentation could impede global trade and cooperation,” it said.

Also Read : Growth Of Ecommerce In India Being Hampered By Inflation

“A plausible alternative scenario in which risks materialize, inflation rises further, and global growth declines to about 2.6 per cent and 2.0 per cent in 2022 and 2023, respectively, would put growth in the bottom 10 per cent of outcomes since 1970,” said IMF.

According to the paper, current levels of inflation pose a clear risk to current and future macroeconomic stability, and bringing it back to central bank targets should be policymakers’ top concern.

According to the IMF, targeted fiscal support could help mitigate the impact on the most vulnerable.

“But with government budgets stretched by the pandemic and the need for an overall disinflationary macroeconomic policy stance, offsetting targeted support with higher taxes or lower government spending will ensure that fiscal policy does not make the job of monetary policy even harder,” the report added.

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