International Monetary Fund's Prediction Of A Soft Landing For Global Economy Bodes Well For India

The 190-country multilateral lending agency also revised its projections for India’s GDP growth during the calendar year 2023 to 6.7 per cent from 6.3 per cent, which it had forecast in October.

The IMF’s figures calculated on a calendar year are moderate compared to the Indian government’s projection of a 7.3 per cent growth in FY 2023-24 (April-March) and a 7 per cent growth in the fiscal year ahead.

Nonetheless, the latest numbers from the IMF represent an upgrade of 0.2 percentage point from the agency's earlier forecast, "reflecting resilience in domestic demand," the World Economic Outlook report said.

It also upped China’s growth forecast by 0.4 percentage point to 4.6 per cent, citing stronger-than-expected growth last year and higher government spending, as reasons for the upgrade.

In its prescriptions to governments, the IMF said there was a need to curb the rise of public debt and come up with a renewed focus on fiscal consolidation and to raise revenue for new spending priorities. India will be announcing its annual budget on February 1, and policy-makers in New Delhi who have been working on the document have had discussions with lending agency where it had also highlighted higher debt accumulated by the central government over time.

IMF also said emerging economies in Asia will grow at 5.2 per cent, a 0.4 percentage point upgrade from its prior forecast in October, but still lower than the estimated 5.4 per cent growth for 2023.

For the entire world, the multilateral lender said it now expects the global economy to grow 3.1 per cent in 2024, better than the 2.9 per cent it had predicted in its previous estimate in October. It also forecasts a slightly higher GDP growth for Earth at 3.2 per cent.

IMF said its projections for world economic growth were “on account of greater-than-expected resilience in the United States and several large emerging market and developing economies, as well as fiscal support in China”.

The forecast for 2024 and 2025 is, however, below the historical average (2000-2019) of 3.8 per cent, because of higher central bank policy rates to fight inflation, a withdrawal of fiscal support by governments and high debt weighing down on economic activity, besides low underlying productivity growth.

It said inflation is “falling faster than expected in most regions”, in the midst of unwinding supply-side issues and restrictive monetary policy. Global headline inflation is expected to pare down from 6.8 per cent to 5.8 per cent in 2024 and to 4.4 per cent in 2025, with the 2025 forecast revised down.

“With disinflation and steady growth, the likelihood of a hard landing has receded, and risks to global growth are broadly balanced,” the IMF report said.

Listing the upsides, the lending agency said, “faster disinflation could lead to further easing of financial conditions. Looser fiscal policy than assumed in the projections could imply temporarily higher growth but at the risk of a more costly adjustment later on.” It also advised stronger structural reform to bolster productivity which could have cross-border spillovers.

On the downside, IMF warned that “new commodity price spikes from geopolitical shocks––including continued attacks in the Red Sea––and supply disruptions or more persistent underlying inflation could prolong tight monetary conditions”. It also said deepening property sector woes in China or, elsewhere, a disruptive turn to tax hikes and spending cuts by governments could also cause growth disappointments.

It also said that governments would face a near-term challenge to “successfully manage the final descent of inflation to target, calibrating monetary policy in response to underlying inflation dynamics.”