Washington: The International Monetary Fund (IMF) has slashed its annual growth projection for India by 0.8 percentage points to 7.4 per cent for 2022 and forecast “increasingly gloomy developments” for the global economy such as high inflation, downturn in China because of Covid and spillovers from the war in Ukraine.
The fund cut its 2023 projection for India also by 0.8 percentage points to 6.1 per cent. These revised forecasts are relative to those in the fund’s April world outlook report.
The 2022 cut for India “reflects mainly less favorable external conditions and more rapid policy tightening”, said the fund’s World Economic Outlook Update, titled “Gloomy and More Uncertain”.
The World Bank has also slashed its projections for India to 7.5 per cent from 8 percent for 2022-23, blaming it on a surge in Covid-19 cases, related mobility restrictions and the war in Ukraine.
The IMF forecast for India was called “rational” by an official who spoke on background.
“Given the gloomy global outlook and inflation contagion, IMF’s growth forecast for India moderating it down by 0.8 percentage point is rational. The Indian economy seems to be far more resilient at this point in time as others like the US and China are taking a bigger hit with the forecast cut down to 1.4 and 1.1 percentage points respectively,” the official said.
“Further, the IMF continues to project India’s growth rate in 2022 as the fastest growing major economy with 7.4 percent and the only other country around this rate is Saudi Arabia with 7.6 per cent. Nearest to this ASEAN-5 at 5.3 per cent while China is way down to 3.3 per cent.”
The IMF projected a rather grim outlook for the world at large, saying it was facing “increasingly gloomy developments in 2022 as risks (that it had warned in April) began to materialise”.
These are: higher inflation worldwide, specially in the US and major European economies, triggering a sharp tightening in global financial conditions; a sharper-than anticipated slowdown in China, reflecting Covid-19 outbreaks and lockdowns; and further negative cross-border effects from the war in Ukraine.
The IMF slashed its global growth forecast to 3.2 per cent for 2022 and 2.9 per cent in 2023, down from April estimates of 3.6 per cent for both years.
“The outlook has darkened significantly since April,” IMF Chief Economist Pierre-Olivier Gourinchas said in a statement. “The world may soon be teetering on the edge of a global recession, only two years after the last one.”
US has ‘very narrow path’ to avoid recession: IMF
Washington: The United States has only a slim chance of avoiding an economic downturn given the many risks it faces, the IMF said.
“It’s a very narrow path,” IMF chief economist Pierre-Olivier Gourinchas said. “The current environment suggests that the likelihood that the US economy can avoid a recession is actually quite narrow.”
He warned that even a “small shock” could tip the US economy into recession.
In its latest update to the World Economic Outlook, the IMF slashed the growth forecast for the United States to 2.3 percent this year, a drastic 1.4 percentage points lower than the April forecast.
It is projected to slow further next year, with growth of just 1.0 percent.
The US central bank has been raising interest rates aggressively to tamp down red-hot inflation, which is slowing economic activity.