IMF predicts India's GDP growth to moderate to 7% in 2024, 6.5% in 2025

India's GDP growth is likely to moderate from 8.2 per cent in 2023 to 7 per cent in 2024 and 6.5 per cent in 2025 because the pent-up demand accumulated during Covid has exhausted, as the economy reconnects with its potential, the International Monetary Fund (IMF) said on Tuesday.

About the global economy, the IMF said the battle against inflation has largely been won, even though price pressures persist in some countries.

After peaking at 9.4 per cent year over year in the third quarter of 2022, headline inflation rates are now projected to reach 3.5 per cent by the end of 2025, below the average level of 3.6 per cent between 2000 and 2019, it said.

The annual World Economic Outlook released here projected global economic growth to stay steady at 3.2 per cent in 2024 and 2025, even though a few countries, especially low-income developing countries, have seen sizable downside growth revisions.

"In India, the outlook is for GDP growth to moderate from 8.2 per cent in 2023 to 7 per cent in 2024 and 6.5 per cent in 2025, because pent-up demand accumulated during the pandemic has been exhausted, as the economy reconnects with its potential," the IMF said in the World Economic Outlook.

According to the latest Economic Survey, the GDP growth in 2024-25 is expected to moderate to 6.5 to 7 per cent from 8.2 per cent in 2023-24.

According to Pierre-Olivier Gourinchas, a French economist and IMF Chief Economist, the global economy remained unusually resilient throughout the disinflationary process. "Growth is projected to hold steady at 3.2 per cent in 2024 and 2025, but some low-income and developing economies have seen sizable downside growth revisions, often tied to intensifying conflicts," he said.

In advanced economies, growth in the United States is strong, at 2.8 per cent this year, but will revert toward its potential in 2025.

For advanced European economies, a modest growth rebound is expected next year, with output approaching potential. The growth outlook is very stable in emerging markets and developing economies, around 4.2 per cent this year and next, with continued robust performance from emerging Asia, he said.

"Despite the good news on inflation, downside risks are increasing and now dominate the outlook. An escalation in regional conflicts, especially in the Middle East, could pose serious risks for commodity markets.

"Shifts toward undesirable trade and industrial policies can significantly lower output relative to our baseline forecast. Monetary policy could remain too tight for too long, and global financial conditions could tighten abruptly," he said.