IMF maintains India’s growth projection at 7% for FY25

A view of the International Monetary Fund headquarters building in Washington, DC, ahead of the 2024 Annual Meetings of the IMF and World Bank. | Photo credit: AFP

The International Monetary Fund (IMF) maintained its June growth rate projects for India in its report. latest World Economic Outlook (WEO) published Tuesday, October 22, 2024, to launch the annual meetings of the World Bank and the IMF in Washington.

The multilateral lender expects India to grow at 7% in the current financial year ending March 31, 2025 and 6.5% in the next financial year (FY 2025-2026). Global production is expected to grow by 3.2% in 2024 and 2025.

The decline in India’s growth from 8.2% in 2023 is “due to the fact that pent-up demand built up during the pandemic has been exhausted, as the economy returns to its potential”, the report said.

The United States is expected to grow 2.8% this year and 2.2% next year, an upward revision from the July WEO update.

Globally, inflation is falling.

“The global battle against inflation has been largely won, although price pressures persist in some countries,” the IMF said. Inflation, which reached 9.4% in the third quarter of 2022, is expected to reach 3.5% by the end of 2025.

A global recession was avoided thanks to the disinflationary process, despite a synchronized tightening of monetary conditions, the IMF said. However, downside risks now dominate the outlook. Risks have increased since previous WEO releases in April and June of this year.

International financial institutions are meeting on the eve of the US elections and several conflicts around the world – and this has had an impact on the projections. Finance ministry officials from around the world, including Finance Minister Nirmala Sitharaman, are due to meet in Washington later this week.

“Of course, there is geopolitical risk with potential for escalation of regional conflicts and how that could affect commodity markets…,” Pierre-Olivier Gourinchas, IMF chief economist, told reporters. during a conference call before the report’s release.

The war between Russia and Ukraine continues and the conflict in West Asia has intensified in recent weeks, particularly in Lebanon.

The IMF’s chief economist also identified growing protectionist policies as one of the risks. In addition, the fact that monetary policy has remained too restrictive in some countries for too long and that this has an impact on labor markets constitutes a risk, according to Mr. Gourinchas. Sovereign debt tensions and weak activity in China were among the other risks he mentioned.

The IMF recommended a “triple policy pivot” to address the “relatively mediocre” growth rate, as Mr. Gourinchas called it, of 3.2% in the medium term. The first is to adopt a neutral monetary policy, a process underway in many countries. The second is the need to build fiscal reserves after years of lax fiscal policy. The third concerns structural reforms aimed at increasing growth and productivity, addressing aging populations and young people seeking opportunities in certain regions of the world, combating the climate transition and increasing resilience.