IMF trims global growth forecast; expects India’s financial sector to do better
IMF’s World Economic Outlook January 2022 said India’s prospects for 2023 are marked up on expected improvements to credit growth
Global economic growth will dip from 5.9% in 2021 to 4.4% in 2022, half a percentage point less than it estimated just three months ago, and 3.8% in 2023, the International Monetary Fund (IMF) noted in its World Economic Outlook released on Tuesday.
The Fund estimates that India will grow at 9% in 2021-2022 – it estimated India’s growth prospects at 9.5% for the year in its October 2021 assessment; projects 9% growth for the Indian economy in 2022-23 – in its October assessment, this was pegged at 8.5%; and 7.1% in 2023-24.
“India’s prospects for 2023 are marked up on expected improvements to credit growth – and subsequently investment and consumption – building on better-than-anticipated performance of the financial sector,” the report noted.
But the Fund’s prognosis for the global economy is grim. “As the new Omicron Covid-19 variant spreads, countries have reimposed mobility restrictions. Rising energy prices and supply disruptions have resulted in a higher and more broad-based inflation than anticipated, notably in the United States and many emerging market and developing economies. The ongoing retrenchment of China’s real estate sector and slower-than-expected recovery of private consumption have also have limited growth prospects,” the report notes. Earlier this month, the World Bank too had predicted a slowdown in a global growth, pegging it at 4.1% in 2022.
The dip in its projections for global growth are largely driven by the Fund’s assessment of economic prospects in the US and China. The report noted that removing the Build Back Better policy (a Joe Biden initiative that is stuck in Congress) from the baseline, earlier withdrawal of monetary accommodation, and continued supply shortages produced a downward revision of 1.2 percentage points for growth in US in 2022 – now pegged at 4%. “In China, pandemic-induced disruptions related to zero-tolerance Covid policy and protracted financial stress among property developers have induced a 0.8 percentage point downgrade.”
IMF believes that elevated inflation will stay longer than assumed, and will wane off only in 2022 as “supply side imbalances wane and monetary policy in major economies responds”.
The outlook, however, is clear on the risks to the global economy – pointing to the possibility of the emergence of new Covid-19 variants, renewed economic disruptions, supply chain disruptions, energy price volatility, and localised wage pressures.
“As advanced economies lift policy rates, risks to financial stability and emerging markets and developing economies’ capital rates, currencies and fiscal positions – especially with debt levels having increased significantly in the last two years – may emerge.”
The Fund also alluded to the possibility of geopolitical tensions (the US and Russia are locked in a bitter dispute over Ukraine) and the ongoing climate emergency as other risks.
In a blog on the IMF’s assessment, Gita Gopinath, the Fund’s first deputy managing director, also flagged the dangers of uneven recovery. “The troubling divergence in prospects across countries persists. While advanced economies are projected to return to pre-pandemic trend this year, several emerging markets and developing economies are projected to have sizeable output losses in the medium-term. The number of people living in extreme poverty is estimated to have been around 70 million higher than pre-pandemic trends in 2021, setting back the progress in poverty reduction by several years.”
The report bats for worldwide access to vaccine, tests and treatments, which entails “increased production of supplies, better in-country delivery systems and fairer international distribution”.
Monetary policy, IMF recommends, will need to tighten in many economies to curb inflationary pressures; fiscal policy, it says, will need to prioritise health and social spending and the worst-affected. “In this context, international cooperation will be essential to preserve access to liquidity and expedite orderly debt restructurings when needed.”