IMF lowers India’s GDP forecast by 60 bps to 6.8%, warns global economies

The International Monetary Fund (IMF) on Tuesday announced
another cut to its gross domestic product (GDP) growth forecast for India for
the ongoing financial year by 60 basis points to 6.8%.

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

In its annual World Economic Outlook report released on
Tuesday, the multilateral agency said, the growth downgrade reflects a
“weaker-than-expected outturn in the second quarter and more subdued
external demand.”

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Global growth is projected to slow from 6% in 2021 to 3.2%
in 2022 and 2.7% in 2023. This is the weakest growth profile since 2021, except
for the global financial crisis and the acute phase of the COVID-19 pandemic.

The economic growth projections show significant slowdowns
for the largest economies including a US GDP contraction in the first half of
2022, a euro area contraction in the second half of 2022, and prolonged
COVID-19 outbreaks and lockdowns in China with a growing property sector
crisis, the IMF said.

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“The global economy continues to face steep challenges,
shaped by the lingering effects of three powerful forces: the Russian invasion
of Ukraine, a cost-of-living crisis caused by persistent and broadening
inflation pressures, and the slowdown in China,” said Pierre-Olivier
Gourinchas, Economic Counsellor and the Director of Research of the IMF, in his
forward to the WEO released during the annual meeting of the IMF and the World
Bank.

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More than a third of the global economy will contract in
2023, while the three largest economies, the United States, the European Union,
and China will continue to stall. “In short, the worst is yet to come, and for
many people, 2023 will feel like a recession,” he said.

The growth rate forecast for China is 3.2%, down from the
8.1% growth rate in 2021.

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“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,” the IMF said.

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

Russia’s economy is expected to contract by 3.4% in 2022
and 2.3% in 2023. The projection for 2022 is a huge upward revision as the IMF
has forecasted a 6% contraction for 2022 in July.

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The contraction in the Russian economy is less severe than
earlier projected, reflecting resilience in crude oil exports and domestic
demand with greater financial and monetary policy support and a restoration of
confidence in the financial system, the IMF pointed out.

On the other hand, Ukraine is projected to contract by 35%
in 2022.