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Wednesday, May 25, 2022
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IMF lowered its global growth prediction, India’s forecast lowered to 8.2%

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According to the new World Economic Outlook (WEO) released by the International Monetary Fund (IMF) on Wednesday, India is expected to grow at 8.2 per cent this fiscal year and 6.9 per cent next year.

While India is expected to be the fastest-growing big economy over the next two years, the growth prediction has been drastically lowered since January, by 0.8 percentage points, due to the economic impact of the Russia-Ukraine conflict.

IMF

IMF projections owing to war

Due to the war, the world’s and most major economies’ growth predictions have been reduced since January’s IMF projections. From a growth rate of 6.1 per cent in 2021, world output is expected to expand at 3.6 per cent this calendar year and next.

According to the IMF, growth forecasts for Japan and India have been downgraded for the Asia region, owing to reduced net exports and weaker domestic demand, as well as rising oil costs, which are projected to dampen consumption and investment.

IMF

“The conflict in Ukraine has generated a costly humanitarian crisis that requires a peaceful conclusion,” according to the analysis, which predicts a significant 35 per cent decline in Ukraine by 2022. Through trade, commodities markets, and financial channels, the conflict will contribute not only to a “severe downturn” in 2022 but also to inflation.

As central banks tighten monetary policy, poor populations are being impacted by higher food and fuel prices, and interest rates are rising, according to the IMF. 

Furthermore, the global economy is fragmenting, with countries breaking links with Russia, “rules-based frameworks” are under attack, and pandemic-induced supply chain disruptions in China are increasing.

At a virtual press conference on Wednesday, IMF research director Pierre-Olivier Gourinchas said, “We are seeing a considerable drop in our growth expectations for India, of 0.8 percentage points for 2022 [FY22-23].” 

Due to increasing food and energy prices pulling down trade balances, India was “suffering like many other countries as a result of the conflict and negative terms of trade shock.” 

Second, external demand was easing as the rest of the world’s development slowed, according to Mr Gourinchas.

The United States is expected to grow at 3.7 per cent in the calendar year 2022 and 2.3 per cent in the calendar year 2023, down 0.3 percentage points from the January WEO. 

Due to interrupted supply chains and the failure of the ‘Build Back Better’ infrastructure package to pass the US Congress, the January projection was already reduced. 

Since January, the Fed has applied a little further downgrading as it withdraws policy support and tightens monetary policy, and as the US’s trading partners endure interruption due to the war.

This year and next, the Eurozone is predicted to grow at 2.8 per cent and 2.3 per cent, respectively. The majority of European countries will face a negative shock in their trade terms as a result of rising energy prices. 

They are also suffering from the effects of interrupted supply networks. According to the IMF, downgrades across the Eurozone are countered by fiscal expansion. Under the burden of sanctions, Russia is anticipated to decrease by 8.5 per cent this year and 2.3 per cent next year.

China is expected to grow at 4.4 per cent this year, then 5.1 per cent next year, following growth at 8.1 per cent in 2021. China’s private consumption has been harmed by repeated lockdowns and a slow recovery in urban employment. The rate of increase in real estate investment has also slowed.

IMF

The worldwide consequences of Russia’s invasion of Ukraine are expected to manifest themselves in a variety of ways. 

First, the price of the commodity rises. Second, the extent to which countries have trading ties with Russia or Ukraine has an impact. Third, cross-border industrial networks are disrupted (e.g. neon gas production, an input for silicon chips is concentrated in Russia and Ukraine as per the IMF). Fourth, there are sanctions.

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