‘Worst to come… 2023 feels like a recession’: IMF warns, lowers forecast for India


The International Monetary Fund on Tuesday cut India’s 2022 economic growth forecast to 6.8 percent — down from an 8.2 percent forecast in January and a July estimate of 7.4 percent. This comes after the World Bank this month cut India’s forecast GDP for the current fiscal year to 6.5 percent. Last month the Reserve Bank of India said it expects real GDP of 7 percent.

In its latest World Economic Outlook, the IMF said more than a third of the global economy is headed for contraction — this year or next — and that the economies of the United States, the European Union and the Chinese economy would continue to stagnate.

“The worst is yet to come and for many people 2023 will feel like a recession,” said Pierre-Olivier Gourinchas, IMF economic adviser.

The IMF said the global economy has taken multiple blows — from the war in Ukraine that has pushed up food and energy prices to COVID-19 and its toll on the economies, as well as rising costs and rising interest rates.

“This year’s shocks will open economic wounds that have only partially healed after the pandemic,” he said as the IMF lowered the global 2023 forecast to 2.7 percent.

The World Bank said in its report that “spillovers from the war between Russia and Ukraine and the tightening of global monetary policy will continue to weigh on India’s economic prospects,” but also noted that India appeared to be recovering better.

READ | IMF cuts India’s economic growth forecast to 6.8 percent in 2022

The IMF’s revised global forecast is 0.2 points below July expectations and the growth profile is the ‘weakest’ since 2001 (excluding the financial crisis and during the pandemic). The global growth forecast for 2022 remains at 3.2 percent.

The IMF’s revised expectations for the US and China

The IMF indicated that expected slowdowns include the contraction in US GDP in the first half of 2022 and the impact of virus lockdowns in China that came on top of a crisis in the real estate market.

The agency said growth in the US is set at 1.6 percent for 2022, 0.7 points lower than its July forecast.

Falling real disposable income continues to eat up consumer demand, and higher interest rates are taking a significant toll on spending, the IMF said.

The Chinese economy is expected to grow by 3.2 percent in 2022 – slightly lower than previous forecasts – but the IMF said a worsening of the country’s real estate sector slump could spill over to the domestic banking sector and weigh heavily on growth. can weigh.

The eurozone slowdown is expected to deepen next year, the IMF also said.

Inflation

Meanwhile, mounting price pressures are the most immediate threat, Gourinchas said.

But misjudging continued inflation could be detrimental to future macroeconomic stability, he warned, “by seriously undermining the hard-won central bank credibility.”

While the current challenges don’t mean a major downturn is inevitable, the fund also warned that many low-income countries are in or close to debt distress. Progress towards debt restructuring for the hardest hit is needed to avoid a wave of sovereign debt crisis.

“Time may be running out soon,” said Gourinchas.

With input from AFP




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