IMF upgrades India economic outlook, while China’s recovery loses steam
'Too early to celebrate' about world economy despite resilient start to 2023
By JACK STONE TRUITT, Nikkei staff writer
NEW YORK- The International Monetary Fund on Tuesday raised its economic forecast for India this year amid a modest improvement in the global growth outlook, but said that China’s post-pandemic recovery has weakened.
According to the IMF’s World Economic Outlook update for July, India remains the world’s fastest growing big economy with a 6.1% expansion this year, up 0.2 percentage point from the IMF’s April projection. The IMF expects India to account for about a sixth of total global growth this year. The upward revision was in part due to a better-than-expected finish to 2022 from strong domestic investment, said Tuesday’s report.
China will be the second-fastest growing major economy at 5.2% this year, but its rebound from the COVID-19 pandemic is losing momentum, the IMF said, leaving its projection unchanged.
The IMF now forecasts global growth to reach 3% this year, a 0.2 percentage point upgrade from April but still below the 3.5% growth logged in 2022.
The update comes a day after China’s Politburo hinted at moves to support the property sector, identified by the IMF as a source of risk.
“In China, the recovery following the reopening of its economy shows signs of losing steam, while there are continued concerns about the property sector,” IMF chief economist Pierre-Olivier Gourinchas said.
Beyond real estate sector woes, sluggish global growth means lower demand for Chinese goods, further weakening the outlook. But IMF research chief Daniel Leigh said the organization considers Beijing’s recent stimulus pledge to be a positive step.
“More could be done, in particular, to make sure that those pre-sold properties are delivered and that there is targeted support to families. That could really raise confidence, strengthen consumption, with positive implications for the region,” Leigh said.
Emerging and developing economies, especially those in Asia, will be drivers for global growth this year as advanced economies slow, the IMF report showed.
The IMF projects 5.3% growth for emerging and developing economies in Asia this year, compared with 4.5% in 2022.
The so-called ASEAN-5 — Indonesia, Malaysia, the Philippines, Singapore and Thailand — are projected to grow 4.6%.
Meanwhile, the U.S. is projected to grow 1.8%, down from 2.1% in 2022, while the eurozone will slow significantly from 3.5% growth in 2022 to just 0.9% growth this year. Japan is projected to grow 1.4% this year, and is one of the few advanced economies performing better in 2023 than in 2022.
Since the IMF’s last outlook update in April, the World Health Organization has declared an end to the COVID-19 health emergency, economic activity has been stronger than expected and fears of a banking crisis have abated following swift action in the U.S. and Switzerland.
“Yet growth remains low by historical standards. And while some adverse risks have moderated, the balance remains tilted to the downside, and it is too early to celebrate,” Gourinchas said.
Inflation is subsiding but core inflation — which excludes the food and energy sectors — remains well above central banks’ targets and is expected to remain unchanged in advanced economies this year, according to the IMF.
“Clearly, the battle against inflation is not yet won,” Gourinchas said.
While the global economy avoided many of the worst-case scenarios posed by risks in the first half of the year, the IMF believes the overall balance remains tilted toward the downside.
Longer term, the IMF continues to sound the alarm on both climate change and geopolitical fragmentation as U.S.-China tensions accelerate a division into rival economic blocs.
“We already see direct investment increasingly being determined by geopolitical proximity between countries rather than geographical proximity, so you’re likely to invest more in countries that are geopolitically close rather than just nearby,” Gourinchas said.
Both climate change and geopolitical fragmentation are expected to especially harm emerging and developing economies that are reliant on an integrated global economy and direct investment, and are also more vulnerable to rising temperatures.
“On all these issues, multilateral cooperation remains the best way to ensure a safe and prosperous economy for all,” Gourinchas said.
Source: Nikkei Asia
