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

The International Monetary Fund (IMF) maintained its June growth rate projects for India in its latest World Economic Outlook (WEO) released on Tuesday (October 22, 2024), to kick off the World Bank and IMF Annual Meetings in Washington.

The multilateral lender expected India to grow at 7% in the current fiscal year ending March 31, 2025 and 6.5% in the next fiscal year (FY2025-26). World output was expected to grow at 3.2% in 2024 as well as 2025.

The drop in India’s growth from 8.2% in 2023 is “because pent-up demand accumulated during the pandemic has been exhausted, as the economy reconnects with its potential,” the report said.

The U.S. is projected to grow at 2.8% this year and 2.2% next year, an upward revision from the July WEO update.

Globally, inflation has been on the way down.

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

A global recession has been avoided through the disinflationary process, despite a synchronised tightening of monetary conditions, the IMF said. However, downside risks now dominate the outlook. The risks had grown since the previous WEO releases in April and June this year.

The international financial institutions are meeting on the eve of the U.S. election and several conflicts around the world – and this has made its impact felt on projections. Finance Ministry officials from around the world, including Finance Minister Nirmala Sitharaman, are due for meetings in Washington during the course of the week.

“Of course, there is geopolitical risk with the potential for escalation of regional conflicts, and how this might affect commodity markets…,” IMF Chief Economist Pierre-Olivier Gourinchas told reporters on a briefing call prior to the report release.

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

The IMF Chief Economist also identified growing protectionist policies as one of the risks. Also, monetary policy remaining too tight in some countries for too long and this impacting labour markets was a risk, according to Mr. Gourinchas. Sovereign debt stress and activity in China being weak were some of the other risks that he listed.

The IMF recommended a ‘triple policy pivot’ to respond to the “relatively mediocre” growth rate, as Mr. Gourinchas termed it, of 3.2% over the medium term. The first is moving to a neutral monetary policy stance, a process under way in many countries. The second is the need to build fiscal buffers after years of a loose fiscal policy. The third is structural reforms to increase growth and productivity, coping with ageing populations and younger people looking for opportunities in some parts of the world, tackling the climate transition and increasing resilience.

“Global activity and world trade firmed up at the turn of the year, with trade spurred by strong exports from Asia,” the IMF said. Image for representation.
| Photo Credit: AP

The International Monetary Fund (IMF) held global growth expectations for 2024 steady in a report on July 16 even as it cut forecasts for the United States and Japan, while warning of inflation risks and trade tensions ahead.

The IMF expects the world economy to grow 3.2% this year, unchanged from its April forecast, according to its World Economic Outlook update.

“Global activity and world trade firmed up at the turn of the year, with trade spurred by strong exports from Asia,” said the fund.

For 2025, it expects global growth of 3.3%.

But even as many countries saw better growth than anticipated early this year, the IMF flagged surprises in Japan and the United States.

The Washington-based lender also cautioned that risks to inflation have increased, with services prices holding up disinflation.

This increases the prospect of interest rates staying elevated for longer, “in the context of escalating trade tensions and increased policy uncertainty.”

Trade measures surged

“We see an explosion in the number of trade restrictive measures,” IMF chief economist Pierre-Olivier Gourinchas told a press briefing on July 16.

Over 3,000 such moves were implemented last year, up from an already-high level of 1,000 in 2019.

These take the form of export restrictions and industrial policies, leading to retaliation, he said.

“One concern we have is that going forward, this will weigh down on global activity,” he noted.

The IMF’s report warned that a resurgence of tariffs can trigger retaliation and a “costly race to the bottom.”

On whether risk assessments shifted after the attempted assassination of former U.S. president Donald Trump, the Republican Party’s nominee in November’s election, Mr. Gourinchas earlier told AFP the fund will consider its implications.

On July 16, he said 2024 is an election-heavy year, adding “there could be some increase in in trade measures” and distortions on industrial policy which could spill over to other countries.

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China concerns

While world growth appears stable, the IMF lowered projections for the United States and Japan.

U.S. growth in 2024 was downgraded to 2.6%, 0.1 percentage points below April’s forecast, due to a “slower-than-expected start to the year.”

Japan’s economy was seen expanding 0.2 percentage points less than expected, by 0.7% this year, mainly thanks to temporary supply disruptions and weak private investment in the first quarter.

The euro area meanwhile is showing signs of recovery with relatively strong services activity, Mr. Gourinchas said, although manufacturing shows weakness.

China and India are expected to power activity in Asia — with China’s 2024 forecast revised up to 5.0% on a private consumption rebound and strong exports.

But Mr. Gourinchas flagged risks to the world’s second biggest economy stemming from weak confidence and unresolved property sector problems.

Should domestic demand weaken, China would rely more on the external sector — a situation countries like the United States are pushing back against.

“An increase in the trade surplus might be small from (China’s) perspective. It could be big from the perspective of the rest of the world,” he said.

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Inflation risks

There also remain risks of sticky inflation amid renewed trade or geopolitical tensions, the IMF cautioned, even as it expects inflation to return to target by end-2025.

Wage growth, if accompanied by weak productivity, could make it tough for firms to ease price increases.

An escalation of trade tensions could also raise near-term inflation risks, by lifting costs of imported goods, IMF said.

Higher inflation could heighten the chances that interest rates stay elevated for longer, increasing financial risks.

The IMF called for careful monetary policy adjustments.