The International Monetary Fund has upgraded its forecast for India’s gross domestic product growth in the current financial year (FY24) to 6.1 per cent from 5.9 per cent, on back of strong growth in the last quarter of FY23 (January-March 2023).
In its latest World Economic Outlook (WEO) update - released on Tuesday - the IMF also slightly raised its global growth outlook for calendar year 2023 to 3% from 2.8% and said that liquidity tightening by central banks continues to weigh on the world economy.
“Growth in India is projected at 6.1 per cent in FY24, a 0.2 percentage point upward revision compared with the April projection, reflecting momentum from stronger-than-expected growth in the fourth quarter of 2022 as a result of stronger domestic investment,” the IMF said in its WEO report.
IMF is the latest agency to have raised its FY24 GDP outlook for India following a very strong January-March quarter, when India recorded 6.1 per cent growth, keeping its tag as the world’s fastest growing major economy. Only the World Bank has had a contrarian take, and recently cut its India forecast for FY24 to 6.3 per cent from 6.6 per cent.
The IMF said on Tuesday that while the global growth forecast for 2023 is modestly higher than predicted earlier, it remains weak by historical standards.
“The rise in central bank policy rates to fight inflation continues to weigh on economic activity. Global headline inflation is expected to fall from 8.7% in 2022 to 6.8% in 2023 and 5.2% in 2024,” it said.
The report stated that the recent resolution of the debt ceiling standoff in United States and, earlier this year, strong action by authorities to contain turbulence in US and Swiss banking, reduced the immediate risks of financial sector turmoil and moderated adverse risks to the outlook.
“However, the balance of risks to global growth remains tilted to the downside. Inflation could remain high and even rise if further shocks occur, including those from an intensification of the war in Ukraine and extreme weather-related events, triggering more restrictive monetary policy,” it said.
Financial sector turbulence could resume as markets adjust to further policy tightening by central banks. China’s recovery could slow, in part as a result of unresolved real estate problems, with negative cross-border spillovers, it said.
The IMF stated that sovereign debt distress could spread to a wider group of economies, something which it is tackling, alongside the World Bank and G-20 President India.
“On the upside, inflation could fall faster than expected, reducing the need for tight monetary policy, and domestic demand could again prove more resilient,” IMF said.