Rashi Mehta
The International Monetary Fund (IMF) has delivered positive news for the Indian economy, revising its growth forecast for the ongoing financial year (FY24-25) upwards to 7%. This upward revision comes on the back of stronger private consumption, especially in rural regions.
Brighter Outlook for FY24-25
The IMF’s latest World Economic Outlook report highlights this positive development. “The forecast for growth in emerging markets and developing economies has been revised upward, driven by stronger activity in Asia, particularly China and India,” the report states. It attributes India’s improved outlook to a combination of factors, including a carryover effect from upward revisions made in 2023 and the anticipated rise in rural consumption.
This upward revision signifies a 0.2% increase from the IMF’s previous projection of 6.8% growth for India in FY24-25, made in April 2024. The IMF report maintains its global growth projection for 2024 and 2025 at 3.2% and 3.3%, respectively. This aligns with the forecast made in the April 2024 World Economic Outlook.
Asia’s Emerging Economies Lead the Way
While global growth projections remain stable, Asia’s emerging markets continue to be the primary drivers. The upward revisions in India and China’s growth forecasts contribute significantly, accounting for nearly half of the projected global growth. However, the IMF report cautions that this momentum might not be sustainable in the long term.
“Prospects for the next five years remain weak, largely due to waning momentum in emerging Asia,” said Pierre-Olivier Gourinchas, Economic Counsellor and Director of Research at the IMF, in a blog accompanying the report. He further highlights that China’s growth is expected to moderate to 3.3% by 2029, indicating a significant slowdown from its current pace.
Inflationary Pressures and Policy Challenges
The IMF report also identifies service price inflation as a hurdle in achieving disinflation, making monetary policy normalization more complex. Rising trade tensions and increased policy uncertainty further contribute to the upside risks for inflation, potentially leading to a scenario of higher interest rates for a longer period.
The report emphasizes the need for careful policy sequencing to manage these risks and sustain economic growth. This includes achieving price stability and rebuilding diminished buffers. While the IMF projects global inflation to slow down to 5.9% in 2024 from 6.7% in 2023, it warns of potential delays in disinflation, particularly in some advanced economies, including the United States.
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