Slower growth is the new reality

The IMF has marked down its growth forecast for the Indian economy to 5.9% in 2023-24, from its earlier forecast of 6.1%

The International Monetary Fund (IMF)’s latest economic outlook for the world and for India present a less optimistic picture than earlier growth projections made by it. According to the estimates, global growth is likely to slow to 2.8 per cent in 2023 as against 3.4 per cent in 2022. The slowdown will mainly affect the advanced economies, which may find their growth dwindle to 1.3 per cent this year from 2.7 per cent last year. The UK and the Euro region will be hit the most. Developing countries are likely to fare better with a likely 3.9 per cent growth in the current year, which is only slightly lower than last year.

The IMF also noted that the growth in the developed economies may be even worse than the projection. This is because some assumptions for the projections may go wrong. It has been noted, for example, that the financial sector, which is now considered to have settled down after the collapse of a few prominent banks, may see further turbulence in the coming months. Though inflation is expected to come down because of central banks’ actions, there are still worries about it. Geopolitical problems centred around the Ukraine war and the Sino-US rivalry will impact trade and other economic activities for some time to come. The IMF’s projection for 2028 is 3 per cent, which is the lowest medium-term forecast since 1990.

The IMF has also marked down its growth forecast for the Indian economy to 5.9 per cent in 2023-24, from its earlier forecast of 6.1 per cent. The downward revision is on account of a slowdown in consumption and other negative data. According to the IMF, the key drivers of the economy will now be investments and trade. Investments will mainly have to come from governments in the present situation. Though major capital investments have been planned by governments, it is doubtful whether they will come through. As for trade, service exports have done well but goods export growth has been modest. Global trade is expected to slow down in 2023. In a milieu of slower global economic growth and trade, India cannot hope to achieve any remarkable growth in trade.

The IMF’s growth estimate for India is much lower than the Reserve Bank of India’s projection of 6.5 per cent growth. The RBI had raised its estimate recently. There are other estimates also, some of them are higher and yet others lower. The Asian Development Bank (ADB) sees a 6.4 per cent growth and Crisil has projected a 6 per cent growth. Some estimates have, like the IMF’s, gone below the psychological 6 per cent. It will be unrealistic to expect any high growth momentum in the given global circumstances.