The International Monetary Fund (IMF) has raised India’s growth forecast to 6.8% from its January projection of 6.5%, citing bullish domestic demand and a rising working-age population. With this, India remains the fastest growing economy of the world, ahead of China’s projected growth of 4.6% during the same period. At the same time, growth in emerging and developing Asian countries is expected to fall from an estimated 5.6% in 2023 to 5.2% in 2024 and 4.9% in 2025, a slight upward revision compared with the January 2024 WEO Update.
The latest report released ahead of the annual spring meetings of the IMF and the World Bank projects another year of slow and steady growth for the global economy, with the US pushing world output through headwinds from lingering high inflation, weak demand in China and Europe, and spillovers from the two regional wars.
The IMF’s estimate is below the 7% growth projected by the government.
Former president of Tata Consultancy Services (TCS) Asia Pacific, Girija Pande told NDTV that “India’s performance is quite stellar” and “the China story is a little mixed”.
“They (China) have a huge debt overhang between the local governments and the property segment. They need to address that. They also have a falling birth rate and ageing population and there’s a huge amount of restructuring going on in China. The IMF has conservatively put China’s growth at 4.6% rather than the 5% which the government has estimated,” asserts Mr Pande.
The former TCS boss believes China’s growth is not picking up due to these drawbacks.
“This will take a little while. There is a level of deflation as well…so the Chinese growth, which normally drives the Asian growth, has actually slowed down in other parts of Asia as well. India is not so coupled with China, so India is growing on its own steam at 6.5%,” argues Mr Pande.
However, the IMF has said, it may revise China’s full-year GDP growth forecast upwards, after the country reported stronger-than-expected 5.3% growth in the first quarter of 2024.
IMF’s latest report also warned that while inflation trends are encouraging, “we are not there yet” and that medium-term growth prospects remained historically weak. Worryingly, the IMF also estimates that there will be more scarring for low-income developing countries, many of which are still struggling to turn the page from the pandemic and cost-of-living crisis. As a group, these low-income developing countries saw their 2024 growth forecast cut to 4.7% from an estimate of 4.9% in January.
“There are a few challenges in the Global South which is worrying them. You’ve got the supply chain problems because of all the geopolitics going on – the oil prices, the commodity prices. Secondly, the interest rates have not come down as fast as expected’, Girija Pande argues.
Regarding the potential escalation of the Middle East conflict after Iran’s rocket and drone attacks on Israel, the IMF believes this could have a “strong effect” on limiting growth and the impact would raise oil prices and inflation, triggering tighter monetary policy from central banks. The report further described an “adverse scenario” in which a Middle East escalation would lead to a 15% increase in oil prices and higher shipping costs would hike global inflation by about 0.7 percentage points.
So, despite the world economy’s resilient outlook, the IMF warns that economic growth could be thrown off course by the continuing adverse effects of higher interest rates and geopolitical tensions, including the wars in Ukraine and Gaza, that have threatened to disrupt crucial trade routes, raising energy prices among other ramifications. The IMF has also stressed the need for huge global investments for a green and climate-resilient future.
