In more bad news for the Indian economy, the International Monetary Fund (IMF) has trimmed its projection of the country’s economic growth in 2022 from 7.4 per cent to 6.8 per cent. Other global agencies have already done the same.
In July, the IMF had projected a gross domestic product (GDP) growth of 7.4 per cent for India for the 2022-23 fiscal. Then, too, it had cut the forecast from 8.2 per cent projected in January this year.
India grew at a rate of 8.7 per cent in the 2021-22 fiscal.
“Significant slowdowns for larger economies”
In its annual World Economic Outlook (WEO) report released on Tuesday, the IMF said the outlook for India was a growth of 6.8 per cent in 2022—a 0.6 percentage point downgrade since the July forecast. It reflects a weaker-than-expected output in the second quarter and more subdued external demand.
Global growth is forecast to slow down from 6 per cent in 2021 to 3.2 per cent in 2022 and 2.7 per cent in 2023. This is the weakest growth profile since 2001, barring the global financial crisis of 2007-08 and the acute phase of the Covid-19 pandemic in 2020-21.
The growth projections reflect significant slowdowns for the largest economies, the IMF said. These include 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 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 Director of Research at the IMF, in his forward to the WEO released during the annual meeting of the IMF and the World Bank.
“The worst is yet to come”
More than a third of the global economy will contract in 2023, while the three largest economies—the US, 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 wrote.
The growth rate projection for China is 3.2 per cent, down from 8.1 per cent in 2021. In that country, 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 a fifth of its economic activity, 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,” Gourinchas said.
In the US, the tightening of monetary and financial conditions will slow growth to 1 per cent next year. In China, the IMF has lowered next year’s growth forecast to 4.4 per cent due to a weakening property sector and continued lockdowns, he wrote in a blog post.
“Russia’s invasion of Ukraine continues to powerfully destabilize the global economy. Beyond the escalating and senseless destruction of lives and livelihoods, it has led to a severe energy crisis in Europe that is sharply increasing costs of living and hampering economic activity,” he said.
(With agency inputs)