Latest Updates of IMF’s World Economic Outlook

December 27, 2022

The International Monetary Fund (IMF), in its World Economic Outlook, slashed its FY23 growth forecast for India from its July projection of 7.4 percent to 6.8 percent.

What are the key takeaways of the report?
Indian Economy

IMF has cut its FY23 growth forecast for India by 60 basis points from its July projection of 7.4 percent to 6.8 percent. This is the steepest cut made by the multilateral body for any major economy other than the US.
The IMF’s current move follows the World Bank’s slashing of its FY2023 growth projection for India from the earlier prediction of 7.5 percent to 6.5 percent. Several other agencies have also slashed India’s GDP forecast in the recent weeks, including the RBI.
The recent prediction of the IMF reflects “a weaker-than-expected outturn” in the June quarter, a severe fall in external demand and tightening of interest rates by key central banks.
However, India is expected to remain the fastest growing economy in the world.
The IMF has retained its FY24 growth forecast at 6.1 percent. This moderate growth is expected due to high oil prices, weaker external demands and tighter financial conditions.
Inflation in India is expected to ease over the next 2 years. However, the risk of second-round effects from fuel and commodity price shocks is high.
In 2022-23, India’s inflation is projected to be 6.9 percent. It will return to the RBI’s tolerance level of 4-6 percent next year. This reflects the favourable base effects, impact of monetary policy tightening and well-anchored inflation expectations.
In FY2023, India’s GDP will grow by 7 percent due to increased government capital spending and high private demand. However, the current account deficit is expected to increase from last year’s 1.7 percent to 3.5 percent of the GDP in FY2023. This is mainly because of high commodity prices and higher import demand.
On the RBI’s central bank digital currency, the report stated that due to the high competition from private providers, it would be difficult to justify the cost of adopting a CBDC. Hence, there is a need for facilitating cross-border transactions. Key risks associated with the CBDC adoption, like cybersecurity, must be addressed during the implementation.

Global Economy

The IMF kept its 2022 growth forecast for the global economy unchanged at 3.2 percent. However, it had scaled down the 2023 projection from the July forecast by 20 basis points to 2.7 percent.
The global economy is currently affected by three powerful forces – the Russian invasion of Ukraine, persistent and broadening inflation pressure and China’s economic slowdown.
In 2023, majority of people will feel the impact of the recession.

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