IMF revises India’s FY2022 GDP forecast downwards to 9.5 percent

The International Monetary Fund has downgraded India’s FY2022 GDP forecast to 9.5 percent from 12.5 percent estimated earlier on the expectation of potential economic challenges, given the renewed wave of Covid-19.

Gita Gopinath, Chief Economist and Director of the Research Department, IMF said that, “these revisions reflect, to an important extent, differences in pandemic developments, as the Delta variant takes over. Now, close to 40 percent of the population in advanced economies has been fully vaccinated, compared with 11 percent in emerging market economies and a tiny fraction in low-income developing countries. Faster than expected vaccination rates and return to normalcy have led to upgrades, while renewed waves of COVID-19 cases in some countries, notably India, have led to downgrades.”

However, according to the report India’s economic growth for FY2023 is expected to be around 8.5 percent, larger than the 6.9 percent projected in April, earlier this year.

Though IMF maintained its global growth forecast unchanged at six percent for this year but the composition has changed. Gopinath explained that, “Growth prospects for advanced economies this year have improved by half a percentage point, but this is offset exactly by a downward revision for emerging markets and developing economies, driven by a significant downgrade for emerging Asia. For 2022, we project global growth of 4.9 percent, up from our previous forecast of 4.4 percent. But again, underlying this is a sizeable upgrade for advanced economies and a more modest one for emerging markets and developing economies.”

She pointed out that across emerging markets and developing economies, most measures expired last year and they are looking to rebuild fiscal buffers. She believes, “Pent up demand and supply chain bottlenecks are putting upward pressure on prices. Nonetheless, in most advanced economies, inflation is expected to subside to pre-pandemic ranges next year, for the following reasons.”

Gopinath stated that the recovery is not assured until the pandemic is beaten back, globally but, “Concerted, well-directed policy actions at the multilateral and national levels can make the difference between a future where all economies experience durable recoveries or one where divergences intensify, the poor get poorer, and social unrest and geopolitical tensions grow.” 

According to the IMF report, the impact and spread of the Delta variant has affected forecast. Gopinath highlighted the risks going forward, “the downgrades that we have for emerging Asia, several of the countries there, including India, come because of the Delta variant and the rising number of cases that we are seeing in many parts of the world, including in Indonesia and Malaysia. In the U.S., we are seeing cases going up again. So, that is an important concern, and I think, even though we have incorporated some of it into our forecast, there is still an important downside risk, depending upon how this evolves in the future.”