Recently, the International Monetary Fund (IMF) has released its World Economic Outlook 2023 titled- Navigating Global Divergence, which stated that the Indian Economy will grow faster than previously estimated.
GS III: Indian Economy
Dimensions of the Article:
- Key Highlights of the World Economic Outlook
- Key Recommendations
- IMF’s Purpose and History
Key Highlights of the World Economic Outlook:
Global GDP Growth
- IMF projects a 3% global GDP growth for 2023, consistent with its July forecast.
- Global GDP growth for 2024 has been reduced by 10 basis points to 2.9% compared to the July projection.
- China’s economy is anticipated to grow at 5% in 2023, higher than the 3% growth observed in 2022.
- The IMF’s October forecast for China’s growth in 2023 and 2024 is 20 and 30 basis points lower than the July estimates, indicating potential loss of economic momentum.
- Global inflation is expected to rise to 5.8% in 2024, faster than the 5.2% estimated three months prior.
Factors Affecting Growth
- Tight monetary policies have been implemented by central banks to combat the 8.7% inflation rate in 2022.
- Uneven recovery from the pandemic and supply chain disruptions due to Russia’s invasion of Ukraine have also impacted growth.
- Investment remains below pre-pandemic levels due to higher interest rates and stricter lending conditions.
- IMF advises countries to rebuild fiscal buffers as a precaution against future economic shocks.
- There is a 15% chance of growth falling below 2% in 2024, with more downside risks than upside potential.
Findings Related to India:
- The IMF predicts India’s GDP growth for 2023-24 to be 6.3%, marking a 20-basis point increase from its July 2023 projections.
- The 2023-24 growth forecast aligns with the World Bank’s projections in its India Development Update.
- The IMF’s forecast for India’s GDP growth in 2024-25 remains at 6.3%.
- Despite the upward revision for the current fiscal year, India’s projected growth rate is still below the 6.5% projection made by the RBI’s Monetary Policy Committee (MPC).
- Encourage Business Investment: Promote business investment to stimulate economic growth, taking cues from the United States where robust business investment has contributed to an improved growth outlook.
- Monitor Economic Divergence: Keep a close watch on economic disparities among major economies, especially in the eurozone, and address the factors causing contraction or slower growth in specific regions.
- Manage Inflation and Monetary Policy: Exercise caution in managing inflation and monetary policy. The IMF underscores the importance of globally synchronized central bank tightening to control inflation and maintain overall economic stability.
IMF’s Purpose and History:
- The IMF is an international organization with the objectives of fostering global economic growth, ensuring financial stability, promoting international trade, and reducing poverty.
- Established in 1945 during the Bretton Woods conference, it initially aimed to coordinate international economic policies to prevent countries from devaluing their currencies in a competitive manner to enhance their exports.
- Over time, its role expanded to include providing financial assistance to governments facing severe currency crises, acting as a lender of last resort.
Key Reports by the IMF:
- The IMF produces essential reports, including the Global Financial Stability Report and the World Economic Outlook.
- These reports are typically issued biannually in April and October.
Main Functions of the IMF:
- Promoting global economic growth and stability.
- Encouraging international trade.
- Alleviating poverty through its financial assistance programs.
- Acting as a stabilizing force during currency crises.
-Source: Economic Times