“Over the medium term, the prospects for growth now seem dimmer than in decades,” the IMF said in its flagship World Economic Outlook, lowering the global growth forecast for 2023 to 2.8% from 2.9% estimated earlier and sharply lower than the 3.4% expansion in 2022.
In January, the multilateral lender had predicted India’s gross domestic product to grow 6.1% in FY24 and 6.8% in FY25. The forecast for FY25 has now been cut by half-a-percentage point to 6.3%.
Despite the cut, India will be the fastest-growing economy over the next two years.
The IMF projects India’s inflation to slow to 4.9% in the current year and further to 4.4% next fiscal year.
Last week, the World Bank and the Asian Development Bank had reduced India’s growth forecast for FY24 to 6.3% and 6.4%, respectively.
The Reserve Bank of India’s Monetary Policy Committee, however, last week lifted its forecast for India’s GDP growth to 6.5% for FY24 compared with 6.4% projected in its February meeting.The committee left interest rates unchanged to assess the impact of the cumulated 2.5-percentage-point increase in the last 11 months. Its projection of inflation at 5.2% for 2023-24 was much higher than that of the IMF.
The international lender flagged concerns about inflation, debt and risks to the financial sector from rising interest rates. It warned that if banks cut lending further, the global output will reduce by another 0.3 percentage point in 2023.
“Despite the fillips from lower food and energy prices and improved supply-chain functioning, risks are firmly to the downside with the increased uncertainty from the recent financial sector turmoil,” the report said.
The IMF projects growth to bottom out at 2.8% in 2023, picking up to 3% in 2024. Inflation is expected to stay elevated at 7% for the rest of the year, before declining to 4.9% next year.