UN report: India a bright spot in world economy, to grow 6.7% in 2024

India’s economy is expected to grow by 6.7 per cent in the calendar year 2024, supported by resilient domestic demand, according to a UN report which said higher interest rates and weaker external demand would continue to weigh on investment and exports this year for the country.

The World Economic Situation and Prospects as of mid-2023 released on Tuesday (May 16) said India’s economy, the largest in the South Asian region, is expected to expand by 5.8 per cent in 2023 and 6.7 per cent in 2024 (calendar-year basis), supported by resilient domestic demand.

Inflation in India is expected to decelerate to 5.5 per cent in 2023 as global commodity prices moderate and slower currency depreciation reduces imported inflation.

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The estimates for India’s economic growth in the mid-year assessment remained unchanged from the projections made in the World Economic Situation and Prospects 2023 report launched in January this year. The flagship report issued in January had said that India’s GDP was projected to moderate to 5.8 per cent in 2023 as higher interest rates and global economic slowdown weigh on investment and exports.

Prospects for other South Asian nations ‘more challenging’

India’s economic growth is expected to remain strong even as prospects for other South Asian nations “are more challenging”. India was projected to grow at 6.7 per cent in 2024, the fastest-growing major economy in the world, the flagship report had said.

Chief of the Global Economic Monitoring Branch, Economic Analysis and Policy Division, UN Department of Economic and Social Affairs, Hamid Rashid, had said at a press conference that India was a bright spot in the world economy.

In response to a question by PTI on the trajectory of the Indian economy, Rashid said on Tuesday (May 16) that India remained a bright spot. “Our projection for India hasn’t changed since January and we see many positives, including the inflation that has come down significantly.”

“We are pretty confident with our forecast right now for the year,” he said.

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India’s inflation is about 5.5 per cent while the regional average for South Asia is 11 per cent. Rashid said this means there would be significant room for both fiscal expansion and monetary accommodation and that would support domestic demand.

World economy faces risk of prolonged period of low growth

He however added that risks lie on the external side. He noted that if the external financing condition deteriorates further and it becomes much tighter, then India would face some challenges and exports may face some challenges going forward.

The mid-year assessment said that prospects for a robust global economic recovery remain dim amid stubborn inflation, rising interest rates, and heightened uncertainties.

Instead, the world economy faces the risk of a prolonged period of low growth as the lingering effects of the COVID-19 pandemic, the ever-worsening impact of climate change and macroeconomic structural challenges remain unaddressed.

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According to the report, the world economy is now projected to grow by 2.3 per cent in 2023 (+0.4 percentage points from the January forecast) and 2.5 per cent in 2024 (-0.2 percentage points), a slight uptick in the global growth forecast for 2023.

In the US, resilient household spending has prompted an upward revision of the growth forecast to 1.1 per cent in 2023. The European Union’s economy, driven by lower gas prices and robust consumer spending, is now projected to grow by 0.9 per cent, the report said.

China’s growth this year is now forecast at 5.3 per cent, as compared to the 4.8 per cent projected earlier this year, as a result of COVID-19-related restrictions being lifted.

Achieving Sustainable Development Goals is a challenge

The current global economic outlook presents an immediate challenge to delivering on the Sustainable Development Goals (SDGs), said UN Under-Secretary-General for Economic and Social Affairs, Li Junhua.

The global community must urgently address the growing shortages of funding faced by many developing countries, strengthening their capacities to make critical investments in sustainable development, and helping them transform their economies to achieve inclusive and sustained long-term growth.

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Global trade remains under pressure due to geopolitical tensions, weakening global demand, and tighter monetary and fiscal policies. The volume of global trade in goods and services is forecast to grow by 2.3 per cent in 2023, well below the pre-pandemic trend.

The mid-year report noted that central banks in South Asia continued their interest rate hikes in early 2023 to tackle inflation and stabilize exchange rates. However, the Reserve Bank of India kept the policy rate unchanged at 6.5 per cent in April 2023, after a cumulative increase of 250 basis points since May 2022, it said.

(With agency inputs)