The International Monetary Fund on Tuesday predicted that growth in the Indian economy will slow down to 6.1% in 2023-2024 from 6.8% in the current financial year.

“Growth in India is set to decline from 6.8% in 2022 to 6.1% in 2023 before picking up to 6.8 percent in 2024, with resilient domestic demand despite external headwinds,” the IMF’s World Economic Outlook update stated.

The projection of the international financial institution for the Indian economy for the current financial year is unchanged from October.

Pierre-Olivier Gourinchas, director of the IMF’s research department, told reporters that the downturn in 2023-24 will largely be driven by external factors, PTI reported.

Gourinchas said in a blog post that India remains a “bright spot” in the world economy. “Together with China, it will account for half of global growth this year, versus just a tenth for the US and euro area combined,” he wrote.

Daniel Leigh, the division chief in the IMF’s research department, said that inflation in India is likely to fall to 5% in 2023, reported PTI.

“Inflation in India as in other countries is expected to come down from 6.8% in 2022 to 5% in 2023 and then 4% coming towards the target in 2024,” he said. “...That partly reflects the central bank’s actions.”

The Reserve Bank of India aims to keep retail inflation between 2% and 6%. On December 7, it increased the repo rate by 35 basis points to 6.25%.

The repo rate is the interest rate at which the central bank lends money to commercial banks. An increase in the repo rate can help reduce inflation.

Global scenario

Meanwhile, the IMF predicted that China’s economy will grow by 5.2% in 2023 but will fall to 4.5% in 2024 before settling at below 4% in the medium term.

“Growth in emerging and developed Asia is expected to rise in 2023 and 2024 to 5.3% and 5.2%, respectively, after the deeper-than-expected slowdown in 2022 to 4.3% attributable to China’s economy,” the IMF said.

The World Economic Outlook update projected that the United States will grow by 1.4% in 2023 and 1.0% in 2024. “US growth remains stronger than expected, with consumers continuing to spend from their stock of savings [the personal saving rate is at its lowest in more than 60 years, except for July 2005], unemployment near historic lows, and plentiful job opportunities,” it said.

The IMF said that global growth will remain slow by historical standards due to inflation and the war in Ukraine.

“Despite these headwinds, the outlook is less gloomy than in our October forecast, and could represent a turning point, with growth bottoming out and inflation declining,” it added.

The IMF report predicted that global inflation may fall from 8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024. However, it said that its projection for 2024 was still above pre-pandemic levels of about 3.5%.

It cited declining international fuel and non-fuel commodity prices as well as monetary policies for the projected reduction in inflation.

“Still, disinflation will take time: by 2024, projected annual average headline and core inflation will, respectively, still be above pre-pandemic levels in 82% and 86% of economies,” the international financial institution said.

Gourinchas said that the projections on inflation are encouraging, but the battle is far from being won, PTI reported.

“Monetary policy has started to bite, with a slowdown in new home construction in many countries,” he added. “Yet, inflation-adjusted interest rates remain low or even negative in the euro area and other economies, and there is significant uncertainty about both the speed and effectiveness of monetary tightening in many countries.”