The International Monetary Fund (IMF) on Tuesday trimmed its FY23 growth forecast for India by 60 basis points from its July projection of 7.4% to 6.8%, its steepest cut for any major economy barring the US. IMF’s move follows the World Bank slashing its FY23 growth projection for India to 6.5% last week, from 7.5% predicted earlier.
Most other agencies, too, have been lowering their India forecast in recent weeks. The Reserve Bank of India also recently cut its projection modestly from 7.2% to 7%.
Also Read| India, UAE discuss mechanism for carrying out bilateral trade in national currencies
The IMF stated that the move reflects “a weaker-than-expected outturn” in the June quarter and “more subdued external demand”, indicating that exports will be hit. However, it retained its FY24 growth forecast at 6.1%.
The IMF has kept unchanged its 2022 growth projection for the global economy at 3.2% but scaled down the 2023 projection by 20 basis points from the July forecast to 2.7%.
In its latest World Economic Outlook, the multilateral body said: “As storm clouds gather, policymakers need to keep a steady hand. The global economy continues to face steep challenges, shaped by the lingering effects of three powerful forces: the Russian invasion of Ukraine, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China.”
“In short, the worst is yet to come, and for many people 2023 will feel like a recession,” it added.
The revised forecasts for India follow weaker-than-expected 13.5% growth in the June quarter and growing external headwinds, particularly the tightening of interest rates by key central banks. Nevertheless, India will continue to remain the world’s fastest-growing economy.
IMF expects India’s retail inflation to shoot up to 6.9% in FY23 before easing to 5.1% in the next fiscal, compared with 5.5% in FY22. Similarly, the country’s current account deficit will jump to 3.5% in FY23 and 2.9% in FY24, against 1.2% in the last fiscal.
Also Read| India’s CPI inflation for September to top August levels; analysts say CPI rising yet steady
The IMF has revised down its US growth projection for 2022 by 70 basis points to 1.6% but raised its forecast for the Euro area by 50 basis points to 3.1%. However, the 2023 forecast for the Euro area has been cut by 70 basis points to 0.5%, while that of the US maintained at 1%.
The IMF expects China’s growth to hit 3.2% in 2022 and 4.4% in 2023, down by 10 basis points and 20 basis points, respectively, from its July forecasts.
Interestingly, the IMF now expects Russia’s growth rates to beat its July projections by 260 basis points for 2022 and 120 basis points for 2023. Still, it forecast that the Russian economy will contract by 3.4% in 2022 and 2.3% in 2023, thanks to its war with Ukraine.