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.