IMF raises Indian GDP forecasts amid ‘final descent towards soft landing’

By:
on Jan 31, 2024
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  • The IMF's WEO raised India's GDP expectations to 6.5% YoY for 2024 and 2025.
  • India's govenrment projects that growth will stay above 7%.
  • The report also raised global growth expectations to 3.2% and 3.1% for these two years.

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In its World Economic Outlook (WEO) update, the International Monetary Fund (IMF) increased GDP projections for India from 6.3% to 6.5% for both 2024 and 2025.

The improvement has come on the back of strong spending at home and momentum in economic growth prospects.

This is compared to the projections for the world economy; USA; and China at 3.1% and 3.2%; 2.1% and 1.7%; and 4.6% and 4.1%, for 2024 and 2025, respectively.

The growth estimates for the global economy have been revised 0.2% higher as compared to the October report of the IMF owing to strong data and improving sentiment in the US, as well as the stimulus by the Chinese authorities.

However, in the case of India, the IMF’s projection remains more conservative than that issued by the Government of India (GoI) which stands at 7.0% for FY25 (i.e. April 2024 to March 2025).

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The IMF WEO also reported that the global economy is in its ‘final descent towards a soft landing’ given that inflation continues to decline and growth has been relatively robust, especially in the US.

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However, certain risks do remain.

Potential risks

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US core PCE remains above target; global interest rates are elevated; and China’s property sector continues to be a source of concern.

In addition, the integrity of commodity supply chains could pose a significant threat going forward particularly due to the unfolding Red Sea tensions.

Shefali Shokeen, a lead shipping analyst based in the Middle East, argued,

Last week, a Trafigura oil tanker was hit in the Red Sea. Earlier attacks were carried out on container ships and dry bulk carriers. Now, tankers are also being targeted. We anticipate that tankers will be forced to re-route via the Cape of Good Hope.

Discussing fresh regulatory cost burdens on emissions, she added,

In addition, the longer voyage from Asia to Europe, as well as costs imposed by the EU-ETS regulations shall also go up. Such forces may fuel inflation stubbornness in some regions. Central banks will need to monitor changing conditions due to supply chain disruptions in 2024.

Referring to fiscal risks as the ‘biggest challenge ahead of us’, Pierre-Olivier Gourinchas, the Economic Counsellor and the Director of Research of the IMF wrote,

Most countries came out of the pandemic and energy crisis with higher public debt levels and borrowing costs. Bringing down public debt and deficits will give space to deal with future shocks.

Back to India

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Earlier this week, the Ministry of Finance of the fastest growth major economy released ‘The Indian Economy: A Review” which anticipates 7%-plus growth; emphasizes the country’s commitment to climate change adaptation and mitigation; and highlights many crucial reforms that are bearing fruit, including the GST, sustained increase in government capex, and easing of business compliances.

The Reserve Bank of India’s next meeting is scheduled for February 2024.

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