It retained the country’s growth forecast for FY26 at 6.5%.
In its World Economic Outlook Update, the IMF said the growth forecast for emerging markets and developing economies is revised to 4.3% from 4.2% earlier.
Stronger Activity Seen in Asia
“The projected increase is powered by stronger activity in Asia, particularly China and India,” it said.
“Growth in India & China will account for almost half of global growth in 2024. Growth in major advanced economies is more aligned: euro area growth picks up as the US shows signs of cooling after a strong year,” Gita Gopinath, deputy managing director of IMF, posted on X.India’s economy grew 8.2% in FY24. The Reserve Bank of India (RBI) had revised upwards the country’s gross domestic product (GDP) forecast by 20 basis points (bps) to 7.2% last month. One basis point is 0.01 percentage point.Last month, Fitch Ratings upped India’s growth forecast for FY25 to 7.2% from 7% earlier. “At 3.2% in 2024 and 3.3% in 2025, the forecast for global economic growth is broadly unchanged from that in April,” the IMF said.
China’s growth forecast has been revised upward to 5% in 2024, primarily on account of a rebound in private consumption and strong exports in the first quarter. Its GDP is projected to slow to 4.5% in 2025 and to continue to decelerate over the medium term to 3.3% by 2029, because of headwinds from ageing and slowing productivity growth.
Currency risks
Recent policy divergences in emerging markets and developing economies highlight the need to manage the risks of currency and capital flow volatility, the IMF said. Given that economic fundamentals remain the main factor in dollar appreciation, the appropriate response is to allow exchange rates to adjust, while using monetary policy to keep inflation close to target.
“Foreign reserves should be used prudently and preserved to deal with potentially worse outflows in the future, in line with the IMF’s Integrated Policy Framework,” it said. To the extent possible, macroprudential policies should mitigate vulnerabilities from large exposures to foreign currency-denominated debt, the IMF said.
It cautioned against the misuse of inward and domestically oriented policies that compromise the ability to tackle global challenges, such as climate change, underscoring the importance of multilateral cooperation and trade.
All countries should thus scale back on the use of trade-distorting measures and strive instead to strengthen the multilateral trading system, the IMF said.
Overall, the risks to the outlook remain balanced but some near-term worries have gained prominence such as the threat of inflation that stems from a lack of progress on services disinflation and price pressures emanating from renewed trade or geopolitical tension, according to the outlook update.
“The escalation of trade tensions could further raise near-term risks to inflation by increasing the cost of imported goods along the supply chain,” the IMF said.
Content Source: economictimes.indiatimes.com