IMF raises Indian GDP forecasts amid 'final descent towards soft landing'

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).

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.

However, certain risks do remain.

Potential risks

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,

Discussing fresh regulatory cost burdens on emissions, she added,

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,

Back to India

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.