July 27, 2022
The International Monetary Fund (IMF) on Tuesday slashed its annual growth projection for India by 0.8 percentage points to 7.4 per cent for 2022 and forecasted “increasingly gloomy developments” for the global economy such as high inflation, the 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 favourable 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 per cent 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 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, IMF continues to project India’s growth rate in 2022 as the fastest growing major economy with 7.4 per cent and the only other country around this rate in 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”.
And they are higher inflation worldwide, especially 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.”
The report acknowledged that though it had warned of inflation, it had not expected it to go so high. At 9.1 per cent for both, inflation has been the highest for the US and the UK in 40 years and at 9.8 per cent in the euro area, it’s the highest since the inception of the unified monetary system; and, the report said, emerging and developing economies are also expected to be experiencing inflation at the rate of 9.8 per cent.
With wages not keeping pace in both advanced and emerging markets and developing economies, the report shows that household purchasing power will be eroded.
In China, ongoing Covid-19 outbreaks and mobility restrictions have “disrupted economic activity widely and severely”, the fund said, and a slowdown in China “has global consequences”.
It added: “Lockdowns added to global supply chain disruptions and the decline in domestic spending are reducing demand for goods and services from China’s trade partners.”
The continuing war in Ukraine is causing “widespread hardship”, the report said, detailing the disruptive and debilitating effect it’s having on life — 9 million Ukrainians fleeing the country, for instance — and the economy with existing sanctions on Russia and those coming on its energy export to Europe.