The International Monetary Fund (IMF), in its latest
World Economic Outlook report, has cut its growth forecast for India for FY23
by 80 basis points to 8.2%, saying that higher commodity prices will hurt
private consumption and investment. This was one of the sharpest cuts for
emerging economies compared to the IMF’s January WEO forecasts.

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IMF also slashed its global growth outlook for the
calendar year 2022 to 3.6% from 4.4% saying that global economic prospects have
worsened significantly due to commodity price volatility and disruption of
supply chains caused by the Russia-Ukraine war. Both Russia and Ukraine could
experience large GDP contractions, it added.

Medium-term global growth is expected to decline to about
3.3% over the medium-term, compared to an average of 4.1% in the period from
2004 to 2013, and growth of 6.1% in 2021.

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 “Notable downgrades
to the 2022 forecast include Japan (0.9 percentage point) and India (0.8
percentage point), reflecting in part weaker domestic demand—as higher oil
prices are expected to weigh on private consumption and investment—and a drag
from lower net exports,” the IMF said in its latest WEO report.

India’s FY23 current account deficit is expected to be
around 3.1% as compared to 1.5% expected for FY22. The multilateral institution
also slashed India’s FY24 GDP growth forecast to 6.9% from 7.1% estimated in
IMF’s January report.

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Despite the sharp cut, IMF’s growth forecast for India
for the current financial year remains significantly higher compared to other
agencies including the Reserve Bank of India, which earlier this month cut its
FY23 GDP forecast to 7.2% from 7.8%.

For the financial year 2023-24, IMF sees the Indian
economy growing at 6.9%, while the RBI has projected an expansion of
6.3%.

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The IMF said that compared with its January WEO report,
“the outlook has deteriorated, largely because of Russia’s invasion of Ukraine
-causing a tragic humanitarian crisis in Eastern Europe – and the sanctions
aimed at pressuring Russia to end hostilities.”

According to the IMF WEO report, Russia’s economy is
expected to contract by 8.5% in 2022 as compared to a growth of 2.8% forecast
in January. The Russian economy is likely to shrink again in 2023 by 2.3%.

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For Ukraine, the IMF said it was impossible to estimate
the damage caused by the war to the economy. Although a “very severe
contraction” is inevitable, the Ukrainian economy is projected to contract
by 35% in 2022.

IMF report said that the war is expected to slow growth
and further increase inflation, adding that its forecast was marked by
“unusually high uncertainty”.

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In addition to further sanctions on Russian energy and an
intensified war, a sharper-than-expected deceleration in China and a flare-up
of the pandemic could further slow growth and boost inflation, while rising
prices could trigger social unrest.