IMF Forecasts Gradual Slowdown in India's GDP Growth Over Next Two Years

The International Monetary Fund (IMF) has projected that India's Gross Domestic Product (GDP) growth is expected to moderate from 8.2% i...

The International Monetary Fund (IMF) has projected that India's Gross Domestic Product (GDP) growth is expected to moderate from 8.2% in 2023 to 7% in 2024 and further to 6.5% in 2025. This slowdown is attributed to the exhaustion of pent-up demand accumulated during the COVID-19 pandemic as the economy returns to its potential growth trajectory.

Global Inflation Eases

On the global front, the IMF noted that the battle against inflation has largely been successful, although some countries continue to face price pressures. After reaching a peak of 9.4% year-over-year in the third quarter of 2022, global headline inflation rates are projected to decline to 3.5% by the end of 2025. This rate is expected to fall below the pre-pandemic average of 3.6% observed between 2000 and 2019.

Steady Global Economic Growth Amid Challenges

In its annual World Economic Outlook released on Tuesday, the IMF forecasted that global economic growth would remain steady at 3.2% in both 2024 and 2025. However, it cautioned that several low-income developing countries might experience significant downward revisions in growth due to escalating conflicts and other challenges.

Pierre-Olivier Gourinchas, the IMF's Chief Economist, highlighted the resilience of the global economy during the disinflationary period. He noted that while growth projections remain stable, downside risks are increasing and now dominate the outlook.

Regional Growth Projections

United States: The growth is strong at 2.8% for this year but is expected to align with its potential by 2025.
Advanced European Economies: A modest growth rebound is anticipated next year, with output approaching potential levels.
Emerging Markets and Developing Economies: Stable growth around 4.2% is expected for this year and the next, bolstered by robust performance in emerging Asian economies.

Rising Risks and Uncertainties

Despite positive trends in inflation, the IMF warned of increasing downside risks:

Geopolitical Tensions: Escalating regional conflicts, especially in the Middle East, could disrupt commodity markets significantly.
Trade Policies: Shifts towards protectionist trade and industrial policies may substantially lower global output compared to baseline forecasts.
Monetary Policy: There is a concern that monetary policy could remain excessively tight for an extended period, and global financial conditions could tighten abruptly.

India's Domestic Outlook

Echoing the IMF's projections, India's latest Economic Survey anticipates that GDP growth will moderate to between 6.5% and 7% in 2024-25, down from 8.2% in 2023-24. This moderation reflects the economy reconnecting with its long-term growth potential as pandemic-induced demand wanes.