'Worst is yet to come': IMF cuts India’s growth forecast to 6.8% in FY23

The US-based multilateral agency International Monetary Fund (IMF), in the latest update to its World Economic Outlook report, has cut projections for India's growth by 60 basis points to 6.8% in the current financial year.

The IMF says its gross domestic product (GDP) growth estimates for India reflect a weaker-than-expected outturn in the second quarter and more subdued external demand.

The IMF's GDP growth projections are below that of the Reserve Bank of India, which in its monetary policy committee meeting last month had lowered the real GDP growth for 2022-23 to 7% from 7.2% expected earlier. The downgrade also comes at a time when exports and overall economic activity in India have recovered more strongly than the rest of the world.

The IMF, however, has kept India's growth forecast for FY24 unchanged at 6.1%. The first quarter of the fiscal year had seen the country's GDP growing at 13.5% on a low base effect.

Before the IMF, the World Bank last week had also cut India’s (GDP) growth projection to 6.5% for the financial year 2022-23, saying the spillovers from the Russia-Ukraine war and the global monetary policy tightening cycle weigh on India’s economic outlook.

In emerging and developing Asia, growth is projected to decline from 7.2% in 2021 to 4.4% in 2022 before rising to 4.9% in 2023, with a 0.2 percentage point and 0.1 percentage point downgrade since July for 2022 and 2023, respectively.

The revisions reflect the downgrade for growth in China, to 3.2% in 2022 (the lowest growth in more than four decades, excluding the initial COVID-19 crisis in 2020). COVID-19 outbreaks and lockdowns in multiple localities, as well as the worsening property market crisis, have held back economic activity in China. The neighbouring country's GDP growth in FY24 is expected to rise to 4.4%.

The global growth, however, has been kept unchanged in 2022 at 3.2%, though it's expected to slow to 2.7% in 2023 — 0.2 percentage points lower than the July forecast — with a 25% probability that it could fall below 2%.

The IMF expects more than a third of the global economy to contract this year or next. The three largest economies — the United States, the European Union, and China — will continue to stall, says the agency, adding that "the worst is yet to come", and that for many people "2023 will feel like a recession".

Also, the IMF says global inflation is forecast to rise from 4.7% in 2021 to 8.8% in 2022 but may decline to 6.5% in 2023 and to 4.1% by 2024. "Upside inflation surprises have been most widespread among advanced economies, with greater variability in emerging market and developing economies," says the agency. As per the IMF, policy paths in the largest economies could continue to diverge, leading to further US dollar appreciation and cross-border tensions.