India’s growth to hold at 5.8%; will be fastest growing major economy: UN

IMF had projected India's GDP to grow at 5.9% in the current fiscal while the World Bank pegged it at 6.3%

May 17, 2023

India continues to be ‘the bright spot’ in the world economy with ‘many positives’, the inflation has come down significantly

On Tuesday the UN said that “with many positives”, India’s economic growth this year is expected to hold at 5.8 percent, affirming a series of international organizations’ projections that the country will be the fastest-growing major economy.

The Midyear Update to the UN’s World Economic Situation and Prospects report projected next year’s gross domestic Product (GDP) to hold at 6.7 percent “supported by resilient domestic demand”.

Speaking at the release of the report, the chief of the UN’s Global Economic Monitoring Branch, Hamid Rashid, said that India continues to be “the bright spot” in the world economy with “many positives, including [that] the inflation has come down significantly” to about 5.5 percent.

“This means that there’ll be significant room for both fiscal expansion and monetary accommodation, so that will support domestic demand,” he said.

However, he said that there were external risks. If the external financing conditioning deteriorates further and becomes much tighter, Rashid said, India would face some challenges, especially for exports.

As for India reaching even higher growth rates, he said it is “subject to quite a bit of uncertainty, especially in the external environment, but we are pretty confident with our forecast right now for the year.”

The report said that “financial conditions in the emerging economies with good credit ratings have generally remained relatively stable”.

The International Monetary Fund (IMF) had last month projected India’s GDP to grow at 5.9 percent in the current fiscal while the World Bank (WB) pegged it at 6.3 percent and the Asian Development Bank at 6.4 percent, which is closer to India’s Reserve Bank‘s 6.5 percent.

But both the bigger international institutions cut the projections marginally from the earlier one – IMF by 0.2 percent and the WB by 0.3 percent.

The latest UN report cut the overall growth projects by 0.1 percent for all of South Asia to 4.7 percent this year and 5.8 percent next year. Inflation for the region as a whole is projected by the UN to be 11 percent, 1.9 percent lower than last year, it said.

The inflation rates for Pakistan and Sri Lanka are expected to be in the “double digits” due to the weakening of local currencies.

But India’s inflation deceleration to 5.5 percent would be the result as “global commodity prices moderate and slower currency appreciation reduces imported inflation”, it said.

The report saw a sliver of silver lining in the global economy’s growth prospects this year with an increase of 0.4 percent from the January projection to 2.3 percent, although the director of the Economic Analysis and Policy Division, Shantanu Mukherjee, warned that a “sombre” picture still holds.

He said that despite the increase, it is still below the average growth of 3.1 percent in the two decades before the Covid pandemic and there is a risk of prolonged low growth.

The report projected global growth to increase to 2.5 percent. The global picture is buoyed in part by the increase in projections for the three largest economies in the world, the United States, the European Union, and China, according to the report.

China, which is the second fastest-growing economy, had its growth prospects raised from January by 0.5 percent to 5.3 percent following the lifting of the Covid restrictions which led to a recovery of consumer spending and investments, the report said.

The report’s US growth projection was increased by 0.7 percent to 1.1 percent, and the European Union’s by 0.7 percent to 0.9 percent.

The report said capital flows to developing countries “recovered, albeit with significant volatility, reversing the decline in the first half of 2022”.

“Global financial markets have remained largely resilient despite the ongoing banking turmoil in the United States and Europe,” it said.

Although the regulators managed to contain the turmoil of the collapse of the Silicon Valley Bank and the Signature Bank and the government seizure of the First Republic Bank for sale to JP Morgan Chase in the US and the Swiss government-brokered takeover of Credit Suisse by UBS, the report said that the developments showed “the potential of more systematic financial stability risks”.

[With Inputs from IANS]

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