The International Monetary Fund on Tuesday slashed India’s growth outlook for FY23 to 7.4% from 8.2% forecast in April saying that the revision reflects mainly less favorable external conditions and more rapid policy tightening. In April, the IMF had slashed the growth projection from 9% citing higher commodity prices.
In its latest World Economic Outlook report, it lowered the global growth forecast to 3.2% for 2022 from 6.1% in 2021 led by downgrades for China, the US and India but raised the global inflation to 6.6% in advanced economies and 9.5% in emerging market and developing economies this year- upward revisions of 0.9 and 0.8 percentage point, respectively.
“The outlook for India has been revised down by 0.8 percentage point to 7.4%. For India, the revision reflects mainly less favorable external conditions and more rapid policy tightening,” the multilateral agency said. It expects India’s economy to grow 6.1% in FY24.
India’s gross domestic product growth slowed to 4.1% in the January-March quarter as FY22 ended with an 8.7% expansion.
“The baseline forecast is for growth to slow from 6.1% last year to 3.2% in 2022, 0.4 percentage point lower than in the April 2022 World Economic Outlook,” IMF said, attributing it to a sharper slowdown in China due to extended lockdowns, tightening global financial conditions associated with expectations of steeper interest rate hikes by major central banks to ease inflation pressure, and spillovers from the war in Ukraine.
It said that a tentative recovery in 2021 has been followed by increasingly gloomy developments in 2022 as risks began to materialize. Global output contracted in the second quarter of this year, owing to downturns in China and Russia, while US consumer spending undershot expectations.
“Several shocks have hit a world economy already weakened by the pandemic: higher-than-expected inflation worldwide––especially in the United States and major European economies––triggering tighter financial conditions; a worse-than-anticipated slowdown in China, reflecting Covid-19 outbreaks and lockdowns,” it said.
For emerging market and developing economies, the negative revisions to growth in 2022–23 reflect mainly the sharp slowdown of China’s economy and the moderation in India’s economic growth, according to the IMF.
Inflation bites
The body said that with increasing prices continuing to squeeze living standards worldwide, taming inflation should be the first priority for policymakers.
Global inflation has been revised up due to food and energy prices as well as lingering supply-demand imbalances and the IMF said that in 2023, disinflationary monetary policy is expected to bite, with global output growing by just 2.9%.
In emerging markets and developing economies, second-quarter inflation is estimated to have been 9.8%. Higher food and energy prices, supply constraints in many sectors, and a rebalancing of demand back toward services have in most economies driven up headline inflation.
As per the IMF, underlying inflation has also increased, as reflected in different gauges of core inflation, reflecting the pass-through of cost pressures by way of supply chains and tight labour markets, especially in advanced economies.
Global real GDP growth will slow to 3.2% in 2022 from a forecast of 3.6% issued in April, the IMF said in an update of its World Economic Outlook. It added that world GDP actually contracted in the second quarter due to downturns in China and Russia.