IMF cuts India's economic growth forecast to 6.8 pc in 2022

The International Monetary Fund (IMF) on Tuesday cut its projection of India's economic growth in 2022 to 6.8 per cent, as it joins other global agencies that have trimmed forecasts.

The IMF had in July projected a gross domestic product (GDP) growth of 7.4 per cent for India in the fiscal year that started in April 2022. Even that forecast was lower than 8.2 per cent projected in January this year.

India had grown at 8.7 per cent in 2021-22 fiscal (April 2021 to March 2022).

In its annual World Economic Outlook report released on Tuesday, the IMF said outlook for India is growth of 6.8 per cent in 2022 a 0.6 percentage point downgrade since the July forecast, reflecting a weaker-than-expected outturn in the second quarter and more subdued external demand.

IMF expects India's inflation rate to come down to the 4 per cent range in the next financial year with additional monetary tightening from being above the Reserve Bank's target of 6.9 per cent.

Daniel Leigh, the IMF's head of World Economic Studies Division, said at a news conference on Tuesday, "We do expect that inflation will come back into the inflation tolerance band 4 per cent in fiscal year 2023-2024, and additional monetary tightening is going to ensure that that happens."

IMF's chief economist Pierre-Olivier Gourinchas said, "Inflation is still above the central bank target in India at 6.9 per cent (that) were projected for this year and coming down to 5.1 per cent".

"So, the overall stance of policy within that fiscal and monetary policy should probably be on a tightening side," he added at the release of the IMF's World Economic Outlook (WEO) report.

According to the IMF, the global inflation rate is projected to be 8.8 per cent this year and come down to 6.5 per cent next year.

Overall, Gourinchas said, "India has been doing fairly well in 2022 and is expected to continue growing fairly robustly in 2023".

"We have a growth rate at 6.8 per cent for this year and the projection is at 6.1 per cent for next year," he said.

The IMF projected the global growth rate is projected this year to be only 3.2 per cent and 2.7 per cent next year.

"The worst is yet to come," Gourinchas said, warning of a looming recession.

He said, "We are expecting about a third of the global economy to be in a technical recession."

He attributed it to the three largest economies, the US, China and the Euro Area continuing to "stall".

The WEO projected the US economy to grow by only 1.6 per cent in 2022, China by 3.2 per cent, and the Euro Zone by 3.1 per cent.

In China, the frequent lockdowns under its zero-COVID policy have taken a toll on the economy, especially in the second quarter of 2022. Furthermore, the property sector, representing about one-fifth of economic activity in China, is rapidly weakening.

"Given the size of China's economy and its importance for global supply chains, this will weigh heavily on global trade and activity," Gourinchas said.

In the United States, the tightening of monetary and financial conditions will slow growth to 1 per cent next year. In China, the IMF has lowered next year's growth forecast to 4.4 per cent due to a weakening property sector and continued lockdowns, he wrote in a blog post.

"Russia's invasion of Ukraine continues to powerfully destabilize the global economy. Beyond the escalating and senseless destruction of lives and livelihoods, it has led to a severe energy crisis in Europe that is sharply increasing costs of living and hampering economic activity," he said.

According to the IMF, the high interest rate was contributing to the slower growth in the US, the rising energy prices in Europe and the Zero Covid policy in China where lockdowns are still being imposed in some regions and the crisis in the property sector.