In an update to its World Economic Outlook, the IMF noted that the improved growth forecast for the Indian economy is driven by increasing private consumption, especially in rural areas.
The International Monetary Fund (IMF) has increased India's growth forecast for the fiscal year 2024-25 (FY25) by 20 basis points (bps) to 7 percent from 6.8 percent. This upward revision is attributed to improved private consumption, particularly in rural areas, according to the IMF's update to its World Economic Outlook (WEO) on Tuesday, July 16.
Additionally, the IMF has raised its forecast for India's GDP growth to 6.8 percent from 6.5 percent in April. However, the global financial agency of the United Nations (UN) has maintained its estimate of 6.5 percent growth for Asia's third-largest economy in the 2025-26 financial year (FY26).
The IMF stated that it still anticipates the global economy to grow by a modest 3.2 percent this year, unchanged from its previous forecast in April and slightly lower than the 3.3 percent growth in 2023. From 2000 through 2019, before the pandemic disrupted economic activity, global growth had averaged 3.8 percent annually.
Asian Majors: India and China GDP Forecasts
"Growth in India and China will account for nearly half of global growth in 2024," said Gita Gopinath, First Deputy Managing Director (MD) of the IMF and former Chief Economist at the IMF, in a post on the microblogging platform X. India continues to be the fastest-growing major economy.
Government data revealed that India's GDP grew by 8.2 percent in FY24, following growth rates of 7.2 percent in 2022-23 and 8.7 percent in 2021-22. In its latest monetary policy meeting, the Reserve Bank of India (RBI) also raised the GDP forecast for FY25 to 7.2 percent, up from the previously estimated 7 percent.
The IMF has upgraded its growth forecast for China this year to 5 percent, up from the 4.6 percent projected in April, although it is down from 5.2 percent in 2023. This revision is partly due to a surge in Chinese exports at the start of 2024.
The IMF's forecast was released before Beijing reported on Monday that the Chinese economy, the world's second-largest after the United States, had grown at a slower-than-expected annual rate of 4.7 percent from April through June, down from 5.3 percent in the first three months of the year.
China's economy, which once consistently achieved double-digit annual growth, is now confronting significant challenges, including a collapsing housing market and an aging population leading to labor shortages. According to the IMF's chief economist, Pierre-Olivier Gourinchas, China's growth is expected to slow to 3.3 percent by 2029.
The IMF has reduced its 2024 growth forecast for Japan to 0.7 percent, down from the 0.9 percent projected in April and the 1.9 percent growth seen in 2023. This downgrade is attributed to a major automobile plant shutdown and weak private investment, which disrupted Japan's first-quarter growth.
Global Growth Outlook Tepid; US Forecast Slashed
The global economy is projected to experience modest growth over the next two years due to cooling activity in the US and a bottoming out in Europe. The IMF warned that the momentum in the fight against inflation is slowing, potentially delaying an easing of interest rates and maintaining strong dollar pressure on developing economies.
The IMF maintained its 2024 global real GDP growth forecast at 3.2 percent, unchanged from April, and raised its 2025 forecast by 0.1 percentage point to 3.3 percent. These forecasts indicate continued lackluster growth levels, as IMF managing director KristalinaGeorgieva has cautioned about entering what she termed as "the tepid twenties."
After peaking at 8.7 percent in 2022 during the rapid global economic recovery from the pandemic recession, global inflation is expected to gradually ease. The IMF forecasts a decline from 6.7 percent in 2023 to 5.9 percent in 2024 and further to 4.4 percent in 2025. However, a sluggish first quarter in the US prompted the IMF to lower its growth forecast for the country this year from 2.7 percent, as predicted in April, to 2.6 percent.
The IMF cautioned about potential near-term risks to inflation, noting that service prices remained high amid wage growth in labor-intensive sectors. It also highlighted that renewed trade and geopolitical tensions could exacerbate price pressures by raising the cost of imported goods across global supply chains.
"The risk of persistent inflation has heightened the likelihood of prolonged higher interest rates, leading to increased external, fiscal, and financial risks," stated the IMF. Additionally, the IMF cautioned about potential shifts in economic policies due to numerous elections this year, which could have adverse effects on the global economy.
About RR Finance
An integrated financial services group, offering a wide range of financial products and services to corporates, institutions, high-net worth individuals and retail investors.
Disclaimer: The recommendations, suggestions, views, and opinions expressed by experts are their own and do not reflect the views of RR Finance. This blog is for information purpose only, not an investment advice.