International Monetary Fund retains India’s 9.5% growth forecast

The International Monetary Fund (IMF) has kept India’s growth forecast for 2021-22 unchanged at 9.5%, but lowered the global growth projection marginally to 5.9% from 6% earlier citing supply disruptions in advanced economies and worsening pandemic dynamics in low-income developing countries.

The multilateral organisation in its latest World Economic Outlook report released on Tuesday has projected India’s economy to grow 8.5% in FY23.

It said the foremost policy priority should be to vaccinate adequate numbers in every country and prevent more virulent virus mutations.

China’s growth forecast for 2021 and 2022 has been slashed by 0.1% to 8.0 and 5.6%, respectively.

IMF had in July slashed India’s growth forecast for FY22 to 9.5% from earlier projection of 12.5%, citing the severe second Covid-19 wave during March-May.

IMF’s growth projection is in line with the Reserve Bank of India’s GDP growth estimate for the current fiscal at 9.5% as also private agencies.

Global rating agency S&P, too, expects India to grow by 9.5% in FY22, while Moody’s has projected a GDP growth of 9.3%.

Last week, the World Bank retained its India growth projection for FY22 at 8.3% same as its June forecast, but said the increasing pace of vaccinations will determine India’s economic prospects this year and beyond.

Global economy

Pandemic outbreaks in critical links of global supply chains had resulted in longer-than-expected supply disruptions, further feeding inflation in many countries, IMF chief economist Gita Gopinath said in the report.

Overall risks to economic prospects had increased, and policy trade-offs have become more complex, she said.

She also flagged the divergence in economic prospects across countries, terming them as a major concern. “Aggregate output for the advanced economy group is expected to regain its pre-pandemic trend path in 2022 and exceed it by 0.9% in 2024,” Gopinath said.

She said vaccine manufacturers and high-income countries should support the expansion of regional production of Covid-19 vaccines in developing countries through financing and technology transfer solutions.

According to IMF, speeding up vaccination of world population remains the top policy priority, while continuing the push for widespread testing and investing in therapeutics. “This would save millions of lives, help prevent the emergence of new variants, and hasten the global economic recovery,” it said.

If Covid-19 were to have a prolonged impact into the medium term, it could reduce global GDP by a cumulative $5.3 trillion over the next five years relative to our current projection, the report said.

According to IMF, beyond 2022 global growth is projected to moderate to about 3.3% over the medium term.

Inflation worry

IMF said inflation risks were skewed to the upside and could materialise if pandemic-induced supply-demand mismatches continue longer than expected (including if the damage to supply potential turns out worse than anticipated), leading to more sustained price pressures.

“For the most part, price pressures are expected to subside in 2022,” it said. “In some emerging markets and developing economies, price pressures are expected to persist because of elevated food prices, lagged effects of higher oil prices, and exchange rate depreciation lifting the prices of imported goods.”

Monetary policy will need to walk a fine line between tackling inflation and financial risks and supporting the economic recovery, Gopinath said in a blogpost.

India’s inflation targeting regime, unveiled in 2014, led to confidence in the country’s economy as rupee expectations became firmly anchored and inflation and inflation expectations, the WEO report said.

“Monetary policy operations improvements and communication strategies, along with a transparent and credible commitment to reducing inflation, worked to disinflate from high levels,” it said, adding that the Reserve Bank of India’s success on this front opened up the space to pursue other objectives without disturbing inflation expectations.


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