The IMF expressed optimism that Chinese consumption would pick up again in the coming years. However, falling birth rates would still lead to an economic downturn.
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The International Monetary Fund has raised its economic forecast for India for 2024, but at the same time warned of a decline in growth the following year.
India – which the IMF had previously described as “the world's fastest-growing major economy” – is expected to grow 7 percent in 2024, above April's forecast of 6.8 percent, largely due to improvements in private consumption, particularly in rural areas of the country, the report said.
This is a sharp decline from growth of 8.2 percent in the fiscal year from April 2023 to March 2024. Growth will continue to decline and reach 6.5 percent in 2025, the finance agency said.
The world's most populous country, which Goldman Sachs predicts will be the world's second-largest economy by 2075, is attracting investors such as tech giants. Apple To Google while the country works to become an industrial nation.
“Emerging Asia remains the main engine of the global economy. Growth in India and China has been revised upwards and accounts for almost half of global growth. Nevertheless, the outlook for the next five years remains weak,” said Pierre-Olivier Gourinchas, chief economist at the IMF.
Expectations for China
China's economic growth is forecast at 5% this year, unchanged from the IMF. Forecast for MayThis is higher than the April forecast of 4.6%, but lower than the 5.2% expansion in 2023, the IMF said on Tuesday.
The GDP of the world's second-largest economy is expected to slow further, falling to 4.5% in 2025 and then to 3.3% by 2029, according to the latest IMF report. Global economic outlook in July.
The brighter forecast for 2024 is partly due to stronger consumer activity and exports in the first quarter of the year, Gourinchas noted.
“The Chinese economy has grown enormously in the last 15 to 20 years and is overall much less dependent on the external sector than perhaps 15 or 20 years ago,” he said at a press conference.
“The mere fact that China is bigger means that it has a bigger influence in the rest of the world. An increase in the trade surplus might be small from China's perspective, but it could be big from the rest of the world's perspective.”
Gourinchas pointed out that these forecasts were made before the release of China's latest GDP figures.
Ahead of the IMF report on Tuesday, official Chinese data showed that the Chinese economy grew 4.7 percent in the second quarter compared with the same period last year, falling short of expectations of 5.1 percent growth by economists polled by Reuters.
“They suggest that growth in China – particularly consumer confidence and problems in the real estate sector – may still be ongoing,” Gourinchas warned. “That is something we flag in our data as a risk to the Chinese economy. And that appears to be potentially coming true.”
The IMF expressed optimism that consumption would pick up again in the coming years. However, falling birth rates would affect productivity and thus slow the economy.
Growth in India and China will account for almost half of global growth this year.
Growth in Europe and the USA
Global growth is expected to be 3.2 percent in 2024 – unchanged from April’s forecast – and likely to rise slightly to 3.3 percent in 2025, the IMF said.
The U.S. economy is forecast to grow slightly to 2.6% this year compared to 2023, slightly less than the 2.7% rate forecast in April.
The inflation rate in the world’s largest economy is falling and fell from 3.3% in May to 3% in June.
US Federal Reserve Chairman Jerome Powell said on Monday that the central bank would not wait until inflation reached two percent to cut interest rates, adding that a “hard landing” for the economy was unlikely.
“It looks like inflation dynamics are moving in the right direction, at least in the US,” Gourinchas said.
“But we have seen obstacles along the way and we should expect that there may be more and that there may be delays in the pace and speed at which inflation will now come down.”
He stressed that the US public debt remains a major concern.
Growth in the eurozone has been raised to 0.9% for this year – 0.1 percentage points more than forecast in April. This is due to stronger momentum in the services sector and higher net exports than expected in the first half of 2024.
Due to rising real wages and higher investments, growth in the region is expected to rise to 1.5 percent by 2025, the IMF said.
“Spain is a bright spot in the euro area in terms of revisions. We have raised the forecast for this year to 2.4%,” noted Petya Koeva Brooks, deputy director of the IMF's research department.
“A large part of this revision was due to the results of the first quarter of this year, which saw very strong services and exports, as well as a revival in investment.”
Clarification: This story has been updated to reflect that the IMF's latest forecast for China's growth remains unchanged from May.
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