World Bank’s Thumbs-up to Indian Economy
It's latest global report expects India to become the fastest growing economy among the seven largest emerging markets in the world
Barely two days after India’s unofficial growth numbers predicted an over 7% economic growth for the current financial year, the World Bank has given a thumbs-up to the state of the Indian economy. In its latest report, the Bank says India would emerge as the fastest among the seven largest emerging market and developing economies.
In its latest Global Economic Prospects report, the World Bank says though economic growth in India could slow down to 6.9% in the current fiscal year and 6.6% over the next 12 months from the levels of 8.7% in FY22, it could still be among the top performers amongst a small list of seven of the largest developing economies of the world.
The Bank, however, warned the overall slowdown of the global economy and uncertainties over inflation and recession could create uncertainty on the export and investment growth in India. However, the government’s increased infrastructure spending and business facilitation measures could add private investment and support manufacturing capacity expansion, it said.
Advanced economies will have a tough time
The report said growth in the advanced economies could likely slow down to just 0.5% in 2023 from 2.5% a year earlier, with the forecast for the United States being bleak at a 0.5% growth in 2023 – a full 1.9 percentage points below previous forecasts and the weakest levels it has reached outside of official recessions since 1970.
Growth in the European zone could fare worse as the World Bank reports a zero growth now, revised downwards again by 1.9 percentage points. However, in China the growth is projected to be 4.3% in 2023, which also happens to be below the previous forecasts of 5.2%.
“By the end of 2024, GDP levels in emerging and developing economies will be roughly 6% below levels expected before the pandemic. Although global inflation is expected to moderate, it will remain above pre-pandemic levels,” World Bank said in its report.
Excluding China, the Bank’s latest report suggests that the growth in the emerging markets and developing economies would decelerate to 2.7% in the current year compared to 3.8% in 2022. This reflects a significantly weaker external demand that comes on top of the high inflation rates, depreciating currencies, tighter monetary conditions and other domestic headwinds.
The World Bank cautioned that the global economy would come perilously close to a recession this year, led by a sharply weaker growth in all of the world’s top economies led by the US, Europe and China. The multilateral lending agency predicts global economic growth to be 1.7% in 2023 and 2.7% in 2024.
And this is where India apparently stands out. The Bank’s report says, “India is expected to be the fastest growing economy of the seven largest EMDEs.” Monetary and fiscal tightening over the forecast horizon is expected to be less pronounced than in much of the rest of South Asia, given the adequate policy buffers that could support recovery and boost public investment.
The overall outlook continues to be bleak
The World Bank says the sharp downturn in global growth could be widespread with forecasts from 95% of the advanced economies being revised downwards for 2023. The same has been the case with 70% of the emerging market and developing economies, including India. The Bank believes that macroeconomic innovations is what would stand India in good stead.
It warned that extreme weather conditions could complicate the implementation of some of these macroeconomic policies across the world. ““For example, in India, more erratic monsoon rains have translated into more volatile food prices, destabilizing households’ inflation expectations, undermining ability to forecast inflation, and muddling the formulation of monetary policy,” it said.
World Bank sounds a warning note
The bank said global growth could decelerate sharply in 2023 to its third weakest pace over the past three decades. This could result in the global economy treading perilously close to a recession.
“Further negative shocks—such as higher inflation, even tighter policy, financial stress, deeper weakness in major economies, or rising geopolitical tensions—could push the global economy into recession. This would mark the first time in more than 80 years that two global recessions have occurred within the same decade,” the World Bank said in its report.
Finally, the Bank also predicted that over the next twenty-four months, the per capita income growth in emerging markets and developing economies could average around 2.8%, which represents a full one percentage point reduction over the numbers achieved in the previous ten years starting 2010.