IMF recently released its World Economic Outlook report for April, titled “Steady but Slow: Resilience amid Divergence.” This report provides a comprehensive analysis of the current global economic landscape and offers insights into the future trajectory of the world economy.
According to the report, the baseline forecast for the world economy is to continue growing at a rate of 3.2 per cent during 2024-25, which is consistent with the growth rate observed in 2023. This is expected to be driven by slight acceleration in advanced economies, where growth is projected to increase from 1.6 per cent in 2023 to 1.7 per cent in 2024 and to 1.8 per cent in 2025. However, this positive trend will be offset by a modest slowdown in emerging markets and developing economies, with growth expected to decrease from 4.3 per cent in 2023 to 4.2 per cent in both 2024 and 2025.
Inflation to gradually decrease
One of the key highlights of the report is the projection for global growth five years from now, which is estimated to be at 3.1 percent, marking its lowest level in decades. This indicates a challenging outlook for the global economy in the medium to long term. In terms of inflation, the report forecasts a steady decline, with global inflation expected to decrease from 6.8 per cent in 2023 to 5.9 per cent in 2024 and further to 4.5 per cent in 2025. Advanced economies are expected to return to their inflation targets sooner than emerging market and developing economies. However, core inflation is projected to decline more gradually, indicating that inflationary pressures may persist in certain sectors of the economy.
The report also highlights the economic performance of ten emerging markets within the Group of Twenty (G20), which includes Argentina, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa and Turkey. These countries have consistently outperformed advanced economies over the past two decades, with their share of world GDP more than doubling since 2000. The report emphasises the importance of these countries in driving global growth and trade, as well as their role in reducing output volatility and income disparity.
More Indians at global workforce
India, in particular, is expected to play a significant role in global economic growth, with a projected growth rate of 6.8 percent in 2024, down from 7.8 percent in 2023. This moderation in growth is attributed to the tightening of monetary and fiscal policies aimed at reducing inflation. However, there is an expectation that India could outperform these projections, given its strong domestic demand and rising working-age population.
Inflation in India is projected to be 4.6 per cent in 2024 and 4.2 per cent in 2025, higher than the global average of 2.4 per cent at the end of 2025. The report also highlights the importance of migrant workers for advanced economies, given the global imbalance in labour supply. India is positioned to help the growth by contributing to the global workforce. So much so that, nearly two in every three new entrants over the medium term will come from India and sub-Saharan Africa.
Further, the UN Trade and Development (UNCTAD) in its latest report said that India is expected to expand by 6.5 per cent, in slight variation to the forecast by the IMF, in 2024, continuing to be the fastest-growing major economy in the world. It noted that multinationals extending their manufacturing processes into the country will diversify their supply chains. This is expected to have a positive impact on Indian exports thereby fuelling the growth. In addition to it, factors such as strong public investment outlays as well as the vitality of the services sector which benefited from robust local demand for consumer services and firm external demand for the country’s business services exports is going to continue in the current fiscal, augmenting the growth story. The UNCTAD report said the Reserve Bank of India is expected to keep interest rates constant in the near term, while restrained public consumption spending will be offset by strong public investment expenditures.
Overall, while global growth has been better than expected, it remains low compared to historical standards. The IMF calls for vigilance, as recent inflation numbers are pushing upward, particularly in services inflation. The report recommends that countries must start building their fiscal buffers through credible fiscal consolidation, which would lower borrowing costs and improve financial stability.
