The International Monetary Fund on Tuesday hailed India as “one of the bright spots” in the global economy even as it trimmed its projected growth for 2023 by 0.2 percentage points, but only because, it acknowledged, it had previously underestimated the country’s performance during the Covid-19 pandemic years of 2020-2021.
In other words, the Indian economy had fared far better in those years than the IMF had estimated and, therefore, had “less room for catching up” than the rest of the world.
The fund’s had a grim warning for the global economy though: while the recovery from pandemic and the war in Ukraine will continue, although at a rate slower than projected before, because of recent turmoil in the banking sector — shutting down of two regional banks in the US and the distress sale of Switzerland’s Credit Suisse — the “fog around the world economic outlook has thickened”.
The fund’s World Economic Outlook, a quarterly report on the state of the global economy, cut the projected growth for the world by 0.1 per cent and said the slowdown will take place in advanced economies, chiefly the UK and the euro area. The banking system turmoil, however, will hit emerging markets and developing economies the hardest, if it deepens.
“We are therefore entering a tricky phase during which economic growth remains lacklustre by historical standards, financial risks have risen, yet inflation has not yet decisively turned the corner,” Pierre-Olivier Gourinchas, the fund’s economic counsellor and the director of research, wrote ina blog accompanying the World Economic Outlook.
The economic outlook cuts India’s growth projected by 0.2 percentage points from its January report to 5.9 per cent for 2023 and then it will rebound back to 6.3 per cent in 2024.
The report itself offered no explanation. But Daniel Leigh, a senior IMF official said at a news conference: “This is one of the bright spots in the global economy right now; such a high growth rate and it is moderating down to 5.9 with minus point two revision compared to January.
“We realized that 2020-2021 has been actually a lot better than we thought. And so actually, there’s less room for catching up,” Leigh said further, adding, “And that pent up demand (regarding) consumption that was informing our previous forecast is therefore going to be less because they’ve already had more catching up before. So that’s why there’s downward revision”.