IMF hikes India’s FY25 GDP estimate by 20 bps to 7%; US forecast slashed amid tepid global outlook

The International Monetary Fund (IMF) raised India's growth forecast for 2024-25 (FY25) by 20 basis points (bps) to seven per cent from 6.8 per cent. The rise in the growth outlook comes due to better private consumption, particularly in rural India, the IMF said in an update to its World Economic Outlook(WEO) on Tuesday, July 16.

The IMF raised its forecast for India's GDP growth to 6.8 per cent from 6.5 per cent in April. The global financial agency of the United Nations (UN) left unchanged its estimate for a 6.5 per cent growth in Asia's third- largest economy's gross domestic product (GDP) for the 2025-26 financial year (FY26).

Also Read: GDP blitzkrieg in FY24 keeps India ahead of its major-economy peers

The IMF added that it still expects the world economy to grow a lackluster 3.2 per cent this year, unchanged from its previous forecast in April and down a tick from 3.3 per cent growth in 2023. From 2000 through 2019, before the pandemic upended economic activity, global growth had averaged 3.8 per cent a year.

Asian majors: India, China GDP forecasts

"Growth in India and China will account for almost half of the global growth in 2024," said Gita Gopinath, First Deputy Managing Director (MD) of IMF and former Chief Economist at the IMF, in a post on the microblogging platform ‘X’. India also continues to remain the fastest-growing major economy.

Government data revealed that India's GDP grew at 8.2 per cent during FY24. The economy grew 7.2 per cent in 2022-23 and 8.7 per cent in 2021-22 respectively. The Reserve Bank of India (RBI), in its latest monetary policy meeting, also raised the GDP forecast for FY25 to 7.2 per cent from seven per cent pegged earlier.

The IMF upgraded its growth forecast for China this year to five per cent from the 4.6 per cent it had projected in April, though down from 5.2 per cent in 2023, partly because of a surge in Chinese exports at the start of 2024

The IMF forecast was posted before Beijing reported Monday that the Chinese economy, the world's second-largest after the United States, had grown at a slower-than-expected 4.7 per cent annual rate from April through June, down from 5.3 per cent in the first three months of the year.

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China's economy, which once regularly grew at a double-digit annual pace, is facing significant challenges, notably the collapse of housing market and an aging population leaving the country with labour shortages. According to IMF's chief economist Pierre-Olivier Gourinchas, China's growth will slow to 3.3 per cent by 2029.

The IMF lowered its outlook for 2024 growth in Japan to 0.7 per cent from the 0.9 per cent it had envisioned in April and from 1.9 per cent in 2023. A major automobile plant shutdownand weak private investment disrupted Japan's first-quarter growth.
 

Global growth outlook tepid; US forecast slashed

The global economy is set for modest growth over the next two years amid cooling activity in the US and a bottoming out in Europe. The IMF warned that momentum in the fight against inflation is slowing, which could delay an easing of interest rates and keep up strong dollar pressure on developing economies.

The IMF kept its 2024 global real GDP growth forecast unchanged from April at 3.2 per cent and raised its 2025 forecast by 0.1 percentage point to 3.3 per cent. The forecasts fail to shift growth from the lackluster levels that IMF managing director Kristalina Georgieva has warned would lead to “the tepid twenties.”

Also Read: Shifting employment into construction, services, and manufacturing can boost India’s GDP growth by 0.2-0.5%: IMF

After surging to 8.7 per cent in 2022 as the global economy rapidly recovered from the pandemic recession, worldwide inflation is expected to continue easing — from 6.7 per cent in 2023 to 5.9 per cent this year and 4.4 per cent in 2025. But a weak first quarter in the US led the IMF to downgrade its forecast for US growth this year to 2.6 per cent from 2.7 per cent it had predicted in April.

The IMF warned of near-term upside risks to inflation as service prices remained elevated amid wage growth in the labour-intensive sector and said renewed trade and geopolitical tensions could stoke price pressures by increasing the cost of imported goods along the supply chain.

“The risk of elevated inflation has raised the prospects of higher-for-even-longer interest rates, which in turn increases external, fiscal and financial risks,” said the IMF. The IMF also warned of potential swings in economic policy due to many elections this year that could have negative spillovers to the rest of the world.