Improved consumption prospects, especially in rural areas, are expected to bolster the country’s growth trajectory in the ongoing financial year 2024-25, according to the International Monetary Fund (IMF). On Tuesday, the IMF revised India’s growth forecast upward by 20 basis points to 7 percent.
For the next financial year, the IMF maintained its projection at a slower growth rate of 6.5 percent, as outlined in the latest edition of the World Economic Outlook.
“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 forecast for India’s growth has also been raised to 7 percent this year, reflecting a carryover from upward revisions to growth in 2023 and improved private consumption prospects, particularly in rural areas,” the IMF reported. India’s economy is now forecast to grow by 7 percent, up from the 6.8 percent projected in April. Globally, growth is expected to align with the April 2024 World Economic Outlook forecast, at 3.2 percent in 2024 and 3.3 percent in 2025.
Asia’s emerging market economies remain the primary engine for the global economy, with growth in India and China revised upward, accounting for nearly half of global growth, noted Pierre-Olivier Gourinchas, Economic Counsellor and Director of Research at the IMF. He highlighted that the outlook for the next five years remains weak, largely due to declining momentum in emerging Asia. “By 2029, growth in China is projected to moderate to 3.3 percent, significantly below its current pace,” he added. Growth in major advanced economies is becoming more aligned as output gaps close. “The United States shows increasing signs of cooling, especially in the labor market, after a strong 2023. Meanwhile, the euro area is expected to pick up following a nearly flat performance last year,” he stated.
Varied momentum in activity at the start of the year has somewhat narrowed the output divergence across economies as cyclical factors wane and activity aligns more closely with its potential. Services price inflation is hindering progress on disinflation, complicating monetary policy normalization, the IMF said. Upside risks to inflation have increased, raising the prospect of higher-for-longer interest rates amid escalating trade tensions and increased policy uncertainty. To manage these risks and sustain growth, the policy mix should be carefully sequenced to achieve price stability and replenish diminished buffers, the report advised. “As in April, we project global inflation will slow to 5.9 percent this year from 6.7 percent last year, broadly on track for a soft landing. However, in some advanced economies, especially the United States, progress on disinflation has slowed, and risks are to the upside,” Gourinchas said.
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