Washington, United States

The International Monetary Fund (IMF), on Tuesday (July 25) slightly raised the outlook for global growth this year given the resilient economy, particularly, service sector activity in the first quarter of 2023. However, the global lender also warned about the persistent challenges which are dampening the medium-term outlook. Meanwhile, India’s projection of economic growth is at 6.1 per cent in this year. 

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IMF about the growth forecast

In its latest, World Economic Outlook (WEO), the IMF projected global real GDP growth of 3.0 per cent for this year, which is 0.2 percentage points higher than its April forecast. But the global growth is expected to stay there and the forecast for 2024 remained unchanged at 3.0 per cent, amid weak growth among the world’s advanced economies. 

The growth forecast was slightly raised as the IMF noted ease in soaring inflation as well as the acute stress that the banking sector witnessed. “We’re not out of the woods yet and growth remains on the low side,” IMF Chief Economist Pierre-Olivier Gourinchas told AFP, in an interview. 

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“What we are seeing when we look five years out is actually close to 3.0%, maybe a little bit above 3.0%. This is a significant slowdown compared to what we had pre-COVID,” the IMF chief economist told Reuters. 

The global economic growth is nearly half of what it was in two years with 6.3 per cent and also lower than 3.5 per cent in 2022, the WEO noted. Gourinchas told Reuters how the lowered growth is also related to the ageing of the global population, particularly in countries like China, Japan, and Germany.

Lower inflation

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According to the IMF, the global headline inflation may fall to 6.8 per cent this year, from 8.7 per cent in 2022 and may witness a further drop to 5.2 per cent next year. On the other hand, core inflation would decline more gradually, with 6.0 per cent in 2023 from 6.5 per cent, last year to 4.7 per cent in 2024. 

Gourinchas told Reuters we might have to wait until the end of 2024 or early 2025 to see the drop in inflation which the central bankers have targeted and the current cycle of monetary tightening would end.

However, the IMF notes that if the war in Ukraine were to intensify, given Russia’s backing out of the Black Sea grain deal, and the world witnesses a rise in extreme weather events due to the El Nino weather pattern, it could raise the prices of commodities. This in turn could trigger further rate hikes.

The IMF has said the world is a better place than it was and also hailed the World Health Organization’s decision to end the global health emergency due to COVID-19, which has reduced shipping costs and delivery times to pre-pandemic levels. 

‘Broadly stable’ outlook for EMDEs

In the emerging markets developing economies (EMDEs), a growth of 4.0 per cent is expected in 2023 and 4.1 per cent in 2024, while the overall outlook is “broadly stable,” said the IMF. Additionally, the WEO also noted that much of the global growth this year will be contributed by EMDEs like India and China, with substantially slow economic activity in advanced economies. 

The report noted that China’s growth forecast for this year remained unchanged at 5.2 per cent. Meanwhile, advanced economies are expected to grow 1.5 per cent in 2023, which was raised by 0.2 percentage points from April and 1.4 percent in 2024. 

What about India?

India’s growth is projected to be 6.1 per cent this year, which is up by 0.2 percentage points since the previous forecast in April. The report attributed this growth to “momentum from stronger-than-expected growth in the fourth quarter of 2022 as a result of stronger domestic investment.”

(With inputs from agencies) 

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