IMF cuts global growth outlook on war, trims India forecast to 8.2%

Growth projections for the world and most major economies, downgraded from Fund’s January forecasts

India is projected to grow at 8.2% in the current fiscal year and 6.9 % next year ,according to the International Monetary Fund’s latest World Economic Outlook (WEO), which was released on Wednesday.  While India is projected to be the fastest growing large economy over the next two years, the grown forecast since January, was significantly downgraded, by 0.8 percentage points, as a result of the economic impact of Russia-Ukraine war.

The growth projections for the world as well as most major economies, has also been downgraded since January’s IMF projections, owing to the war. World output is projected to grow at 3.6% this calendar year and next, from a growth rate of 6.1% in 2021.

The IMF says Japan and India are seeing “notable” growth forecast downgrades for the Asia region, partly because of lower net exports and weaker domestic demand, with higher oil prices expected to weigh down consumption and investment.

“The war in Ukraine has triggered a costly humanitarian crisis that demands a peaceful resolution,” the report says forecasting a massive 35% contraction for Ukraine in 2022. The conflict will contribute not only to a “significant slowdown” 2022, but also to inflation — via trade, commodity markets and financial channels.

Higher food and fuel prices are impacting vulnerable populations , and interest rates are rising, as central banks tighten monetary policy, the IMF said. Additionally, the global economy is becoming fragmented, with countries cutting off ties with Russia,  “rules-based frameworks” are threated, and pandemic-induced lockdowns in China are exacerbating supply chain distrutpions.

“We are seeing a significant downgrade in our growth estimates for India, of 0.8 percentage points for 2022 [ FY22-23], IMF research director, Pierre-Olivier Gourinchas, said at a virtual press conference on Wednesday.  India was “suffering like many other countries as a consequence of the war and negative terms of trade shock “due to higher food and energy prices weighing down trade balances. Secondly, external demand was also softening as the rest of the world’s growth was impacted, Mr Gourinchas said.

The U.S. is projected to grow at 3.7% (calendar year 2022) and 2.3% (calendar year 2023)  , downgraded by 0.3 percentage points since January’s WEO. The January forecast was already downgraded owing to disrupted supply chains and because the ‘Build Back Better’ infrastructure package did not pass the U.S. Congress. A marginal additional downgrade has been applied since January as the Fed withdraws policy support and tightens monetary policy and as the U.S.’s trading partners experience disruption due to the war.