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The International Monetary Fund (IMF) has identified India as a "bright spot" in the world economy and a key contributor to global growth in the coming years. The IMF recently released its World Economic Outlook report - 'A Rocky Recovery' - that shows that India is likely to grow 5.9% in 2023. The report cites India's impressive performance, with digitization helping pull the country out of pandemic lows, prudent fiscal policies, and significant financing for capital investments expected to sustain growth momentum.
India to contribute 15% of global growth in 2023
Global output growth is projected by the IMF to slow to 2.8% in 2023 (calendar year), picking up to 3% in 2024. IMF Managing Director Kristalina Georgieva said a couple of months back, India continues to remain a relative "bright spot" in the world economy, and will alone contribute 15% of the global growth in 2023.
The IMF used a macroeconomic model based on Platzer and Peruffo (2022) to analyze the impact of different forces on the world economy, including foreign developments affecting domestic interest rates through net international capital flows. The model represents eight major global economies, including the United States, Japan, Germany, the United Kingdom, France, China, India, and Brazil, and is calibrated to reflect demographic developments, productivity trends, retirement age, and other factors. These are the five largest advanced economies and the three largest emerging market and developing economies, which cover some 70% of global GDP.
Asia's dynamism driven by China and India
Silicon Valley Bank, which was struggling, first collapsed on March 10, after a run on the bank by the depositors. Its closure led to a contagion effect and the subsequent shutting down of other banks, including First Republic Bank on Monday. "Asia's dynamism will be driven primarily by the recovery in China and resilient growth in India, while growth in the rest of Asia is expected to bottom out in 2023, in line with other regions," it stated.
IMF further alerted that 2023 can be challenging for the global economy because of the Russia-Ukraine war and the effects of monetary policy tightening as global growth is decelerating. Also, persistent inflationary pressures, and recent financial sector problems in the US and Europe, inject additional uncertainty into an "already complex economic landscape", it said.
Ripples from the collapse of regional banks in the US
The collapse of a few regional banks in the US, which started with Silicon Valley Bank, has sent ripples across the global banking industry and posed fears of a contagion effect across economies. The growth in the Asia Pacific region is also getting a fresh impetus from China's reopening of its economy after extended Covid-related restrictions.
However, IMF cautioned that this dynamic outlook does not imply that policymakers in the region can afford to be complacent. "Monetary policy should remain tight until inflation falls durably back within target. The exceptions are China and Japan, where output is below potential and inflation expectations have stayed muted," it added.
Asia to contribute 70% of global growth
According to the IMF's World Economic Outlook report, Asia is projected to contribute around 70% of global growth. The report shows that Asia's economy is expected to expand by 4.6% in 2023 after a 3.8% increase in 2022, driven primarily by the recovery in China and resilient growth in India. The IMF's macroeconomic model includes eight major global economies, with the five largest advanced economies and the three largest emerging market and developing economies representing some 70% of global GDP. However, the IMF warns that 2023 could be a challenging year for the global economy due to various factors such as the Russia-Ukraine war, inflationary pressures, and recent financial sector problems in the US and Europe. The IMF urges central banks to keep monetary policy tight until inflation falls within target.