IMF keeps India’s FY25 growth forecast unchanged at 7%

New Delhi: The International Monetary Fund (IMF) has maintained its global growth forecast for 2024 and 2025 at 3.2%, and kept India's growth projections unchanged at 7% for FY25 and 6.5% for FY26 in its October 2024 World Economic Outlook, released on Tuesday.

The latest IMF forecasts are similar to those in its July 2024 World Economic Outlook, though "notable revisions have taken place beneath the surface, with upgrades to the forecast for the United States offsetting downgrades to those for other advanced economies—in particular, the largest European countries," the Washington-headquartered agency said in a statement.

According to the latest forecast, the world's largest economy is now poised to grow at 2.8% in 2024 and 2.2% in 2025, against 2.6% and 1.9% forecast for the same periods in the July outlook. Meanwhile, the IMF expects China's economy to grow at 4.8% in 2024 and 4.5% in 2025.

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"Likewise, in emerging markets and developing economies, disruptions to production and shipping of commodities—especially oil—conflicts, civil unrest, and extreme weather events have led to downward revisions to the outlook for the Middle East and Central Asia and that for sub-Saharan Africa," the IMF said in its October 2024 World Economic Outlook.

"These have been compensated for by upgrades to the forecast for emerging Asia, where surging demand for semiconductors and electronics, driven by significant investments in artificial intelligence, has bolstered growth," it added. Overall, global growth is expected to remain stable yet underwhelming, IMF said.

Russia, India drive upward revision

Russia and India drove most of the upward revision for emerging markets and developing economies, it added.

"In India, the outlook is for GDP growth to moderate from 8.2% in 2023 (FY24) to 7% in 2024 (FY25) and 6.5% in 2025 (FY26) because pent-up demand accumulated during the pandemic has been exhausted, as the economy reconnects with its potential," it said.

The IMF's overall forecast for emerging markets and developing economies remained stable for the next two years in its latest outlook, hovering around 4.2% and steadying at 3.9% by 2029.

The Reserve Bank of India (RBI) meanwhile expects the Indian economy to grow at 7.2% in FY25 on the back of strong domestic demand. In June the World Bank raised the country's growth forecast for the current financial year by 20 basis points to 6.6%, citing strong growth momentum.

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India could potentially grow at 9% annually in the absence of internal and external shocks, and the current growth forecast of 7% to 7.2% takes into account the impact of these shocks, said NR Bhanumurthy, director of the Madras School of Economics. 

"I think the risks to Indian economic growth in the near future are global inflation, rising oil prices – which could have a cascading impact on commodity prices – and China’s latest stimulus package," he said. "The IMF had increased its India growth projections in April. I don't think they are over-cautious about the country," he added.

‘Downside risks increasing’

Meanwhile, acknowledging that the global battle against inflation has largely been won, IMF's chief economist Pierre-Olivier Gourinchas cautioned that downside risks are increasing and now dominate the outlook.

"An escalation in regional conflicts, especially in the Middle East, could pose serious risks for commodity markets. Shifts toward undesirable trade and industrial policies can significantly lower output relative to our baseline forecast," he said. "Monetary policy could remain too tight for too long, and global financial conditions could tighten abruptly," he added.

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