IMF delegates participate in a news conference on the IMF release of the World Economic Outlook Update, at IMF headquarters in Washington, DC, on July 25, 2023.
| Photo Credit: AFP
The International Monetary Fund (IMF) has projected a growth rate of 6.1% for India in 2023, which represents a 0.2 percentage point increase compared to the April projection. This upward revision is due to the momentum generated by stronger-than-expected growth in the country’s domestic investment in the fourth quarter of 2022. According to the IMF’s latest update of the World Economic Outlook, global growth is expected to decline from 3.5% in 2022 to 3% in both 2023 and 2024. While the growth forecast for India in 2023 is slightly higher than the April projection, it remains weak in comparison to historical standards. The rise in central bank policy rates to combat inflation continues to have a dampening effect on economic activity. Global headline inflation is predicted to decrease from 8.7% in 2022 to 6.8% in 2023 and 5.2% in 2024, according to the IMF.
The IMF report also highlights the recent resolution of the U.S. debt ceiling standoff and the actions taken by authorities to address banking turbulence in the U.S. and Switzerland as factors that have reduced immediate risks to the financial sector. However, the balance of risks to global growth remains tilted towards the downside. The report warns that inflation could remain high or even increase if further shocks occur, such as an escalation of the conflict in Ukraine or extreme weather events, leading to more restrictive monetary policies. Financial sector turbulence could also resume as markets adjust to further tightening by central banks. China’s recovery could slow down due to unresolved real estate problems, which could have negative spillover effects on other countries. On the upside, inflation could decrease faster than expected and domestic demand could prove to be more resilient, according to the IMF.
In light of elevated and persistent core inflation, the IMF recommends that central banks in economies affected by this issue continue to signal their commitment to reducing inflation. A restrictive monetary stance, with real interest rates above neutral levels, is deemed necessary until there are clear indications that underlying inflation is cooling off. The IMF also emphasizes the need for credible medium-term fiscal consolidation in order to restore budgetary flexibility and ensure debt sustainability, especially considering that fiscal deficits and government debt are above pre-pandemic levels.
