The World Bank on Tuesday, June 11, reaffirmed that India will continue to be the fastest-growing major economy globally, though it noted an anticipated deceleration in the growth rate. According to the June 'Global Economic Prospects' report, India's GDP growth forecast for FY25 remains steady at 6.6 percent. This forecast was bolstered in April when the global agency raised its projection for India's current financial year GDP growth by 20 basis points to 6.6 percent.
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Sustained Growth Projections
Following a robust performance in FY24, the World Bank projects an average annual growth rate of 6.7 percent over the next three fiscal years, with 6.7 percent growth in FY26 and 6.8 percent in FY27. This steady trajectory underscores India's continued economic resilience and capacity for sustained growth, as highlighted in the June 2024 Global Economic Prospects report.
Exceeding Expectations
In the January-March quarter, India's GDP growth surpassed expectations, achieving 7.8 percent, although this represented a decline from the 8.4 percent growth observed in the third quarter. For the entire fiscal year 2023-24, GDP growth has been revised upwards to 8.2 percent from the previous estimate of 7.6 percent, as per data released by the Ministry of Statistics and Programme Implementation on May 31.
RBI's Positive Forecast
The Reserve Bank of India (RBI) also shared a positive outlook in its recent Monetary Policy announcement, forecasting GDP growth at 7.2 percent for FY25, an increase from the earlier projection of 7 percent. This revised forecast by the RBI aligns with the World Bank's optimistic projections, reinforcing confidence in India's economic stability and growth prospects.
Key Points of the World Bank's June Economic Forecast Report
Global Growth Outlook
According to the World Bank’s latest Global Economic Prospects report, the global economy is showing signs of stabilizing in 2024 for the first time in three years. However, this stabilization is still weak by historical standards.
Global GDP growth is projected to be 2.6 percent for 2024-25, which is a 20 basis point increase from the January estimate. For FY26 and FY27, global growth is expected to reach 2.7 percent, driven by modest growth in trade and investment.
The forecast for the next three years indicates that countries representing over 80 percent of the world’s population and GDP will experience slower growth compared to the pre-pandemic decade.
India’s economic trajectory
India, the largest economy in South Asia, has played a pivotal role in regional growth, particularly through its manufacturing and services sectors, according to a World Bank report. The country's growth rate for FY24 is projected at 8.2 percent, reflecting a significant increase of 1.9 percentage points from earlier estimates.
India’s economic expansion has been propelled by its industrial and services sectors, compensating for a decline in agricultural output due to monsoon disruptions. Domestic demand remains robust, supported by infrastructure investments, even as post-pandemic pent-up consumption demand wanes, the report noted. Inflation in India has stayed within the Reserve Bank’s target range of 2-6 percent since September 2023, fostering a stable economic environment, the report added.
However, in other parts of the region, inflation stays high, primarily due to persistently elevated food prices caused by local supply disruptions and rising energy costs. In Pakistan, inflation has eased over the past year due to high base effects and exchange rate stabilization, though it remains elevated.
Fiscal and Trade Balances
According to the report, the fiscal health of South Asian countries is gradually improving. In India, the fiscal deficit relative to GDP is expected to decline due to increased revenues from a broader tax base. Although regional fiscal imbalances are anticipated to improve, the extent of this improvement is less significant outside India. Trade deficits are narrowing, especially in India, enhancing overall economic stability in the South Asian region, the report noted.
Growth outlook in other South Asian economies
In the South Asia region, the anticipated GDP growth is set to decline from 6.6 percent in 2023 to 6.2 percent in 2024, primarily attributed to India's deceleration from its previously high growth rates.
Despite this, the region's growth rate is expected to be sustained at 6.2 percent in 2025-26, largely due to India's steady growth. Bangladesh and other economies in the region are projected to maintain robust growth, albeit at a slower pace, while Pakistan and Sri Lanka are anticipated to experience strengthened economic activities.
Pakistan and Sri Lanka are forecasted to witness enhanced economic performance, notwithstanding challenges such as weak private sector activity in Pakistan and industrial disruptions in Bangladesh due to import restrictions. Nevertheless, the World Bank underscores that the outlook is fraught with downside risks.
These risks encompass disruptions in commodity markets stemming from escalating conflicts, sudden fiscal consolidations, financial instability arising from banks' substantial exposure to sovereign borrowers, more frequent severe weather events, and slower-than-expected growth in China and Europe.
Poverty Reduction in SAR
The report highlighted a projected decline in per capita income growth across the South Asian region, dropping from 5.6 percent in 2023 to 5.1 percent in 2024-25, followed by a marginal increase to 5.2 percent in 2026. This deceleration is attributed to subdued growth in private consumption and potential fiscal adjustments that could impact household income.
Projection for Global Inflation
In addition to GDP growth, the World Bank forecasts a gradual slowdown in global inflation, albeit at a slower pace than previously anticipated, with an average of 3.5 percent for the current year. Persistent inflationary forces suggest that central banks in both advanced and emerging market economies are inclined to maintain a cautious approach towards relaxing monetary policies. As a result, average benchmark policy interest rates are projected to remain approximately twice the average seen between 2000 and 2019 in the coming years.
Risks to Global Growth
Although short-term prospects have seen improvement, the worldwide perspective remains restrained compared to historical norms, with potential risks such as geopolitical tensions, trade disruptions, prolonged high interest rates, and climate-induced disasters. According to the World Bank report, international collaboration is crucial for preserving trade stability, promoting environmentally friendly and digital advancements, providing debt alleviation, and enhancing food security.
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