Growth prescription: On the latest World Economic Outlook 

The IMF’s ‘mediocre’ medium-term outlook merits policy attention

The latest World Economic Outlook released by the International Monetary Fund (IMF) has some good tidings, and some ominous assessments. The good news — that largely pertains to the short term — is that a much-feared global recession has been averted, the global war against inflation ‘almost’ won, and growth is holding steady. The U.S. is likely to grow faster this year than anticipated earlier, balancing out lower estimates for some large European nations. Among developing countries, the IMF downgraded growth hopes for West Asia, sub-Saharan Africa and Central Asia as conflicts and unrest disrupt production and shipping. However, brighter prospects for emerging Asia, enhanced by higher public investments in China and India, offset those downward pressures. The IMF expects the world to grow 3.2% in 2024, as in 2023. The moderation in inflation has been partly attributed to the unwinding of shocks since the COVID-19 pandemic and the Ukraine war, but tight monetary policies played a crucial role too, it noted. With inflation returning near central banks’ targets, there is now room for pivoting monetary policy to a neutral stance and supporting economic activity. Yet, the IMF has cautioned about food price pressures again in some emerging economies, and services inflation being too high, at almost double the pre-pandemic levels.

For India, the IMF has maintained its GDP growth estimate at 7% for 2024-25, followed by 6.5% next year, but linked the moderation in growth from last year to the exhaustion of “pent-up demand accumulated during the pandemic”. Some of this is visible in car and consumer non-durable sales, with urban demand stumbling. A Reserve Bank of India index pegs second quarter GDP growth at 6.8% — it was 6.7% in the first. The favourable monsoon and improved rural incomes could lift the tide in coming months, but may not be taken for granted yet. Of concern, however, is the IMF’s prognosis that global growth should reach a “mediocre” 3.1% in five years, underwhelming relative to pre-COVID trends, with protectionist industrial and trade policies gaining more traction. India’s economy may hinge more on domestic momentum but weaker exports and investment flows will not help. The Centre’s recent averments on the reform agenda have signalled that most work now needs to be done in the States. While that is a truism, central policymakers also need to work doubly hard to lift potential growth: be it to make India a more open economy by lowering import tariffs and FDI barriers as the World Bank has mooted, as well as undertake “ambitious’ domestic reforms to improve competition, economic integration and spur private investments, suggested by the IMF.

Published - October 24, 2024 12:20 am IST