In its latest World Economic Outlook report, the IMF has pared global growth hopes for 2022 from 4.4% projected in January, to just 3.6%, a sharp decline from the estimate of 6.1% for 2021. The invasion of Ukraine has significantly dampened post-COVID recovery prospects, with the IMF highlighting volatile yet sharp commodity prices and supply chain disruptions. Fresh pandemic-driven lockdowns in China’s key manufacturing and trade hubs also compound supply worries and could slow its own growth from 4.8% to 4.4% this calendar year. India’s growth through 2022-23, which the IMF had pegged at 9% in January, has now been projected at 8.2% — lowered by the same extent as overall global growth. This headline number is more optimistic than projections from the World Bank (8%), the ADB (7.5%) and the RBI (7.2%). In 2023-24, however, the IMF expects growth to slip to 6.9%, while the World Bank expects it to be at 7.1%. The IMF has emphasised that these projections are much more uncertain than usual due to the ‘unprecedented nature of the shock’ to the world economy. Growth could slow much more while inflation could turn out higher than expected. The multilateral lender expects India’s retail inflation to now average above the RBI’s tolerance threshold at 6.1% and the current account deficit to touch 3.1% this fiscal year.
The chief factors cited by the IMF for lowering India’s growth trajectory include higher oil prices, inflation that would exacerbate weak domestic demand, and the likelihood of a drag on net exports. The World Trade Organisation has lowered its 2022 global merchandise trade growth forecast to just 3% from 4.7% projected earlier. This means a critical operating growth engine, which manifested in the record $420 billion exports in 2021-22, could sputter. A corollary risk from higher food and fuel prices in emerging economies is heightened social unrest, and the IMF Managing Director Kristalina Georgieva has noted that ordinary families’ budgets are being strained to the breaking point. While she has mooted decisive actions from central banks to stem inflation worries, she has also warned that monetary policy tightening would raise debt servicing costs and put many low-income countries in distress. Indian policy makers need all hands on deck and undivided attention to cope with the multiple headwinds, which include the need to smoothen interest rate hikes, spur consumption, manage fragile fiscal math and currency fluctuations amid volatile foreign capital flows. It would be equally critical to devise a medium-term action plan to minimise the scarring effects of this ‘crisis upon a crisis’, as the IMF expects employment and output to persist below pre-COVID trends till as far as 2026, amid a further dip in global growth after 2023.
