IMF raises growth forecast for India, which is set to be fastest growing major economy in 2023

KEY POINTS

• The IMF now expects India to grow 6.1% in 2023 and 6.3% in 2024.
• China forecasts remain unchanged at 5.2% this year and 4.5% next year.
• Japan is seen growing 1.4% this year and 1% next year.

Indian shoppers buy colored powder ahead of the forthcoming 'Holi' celebrations at a roadside stall in the old city of Allahabad on March 20, 2016.

Sanjay Kanojia | Afp | Getty Images

The International Monetary Fund raised its 2023 growth forecast for India by 20 basis points to 6.1%, bolstering expectations that the current G20 chair will be the world's fastest growing major economy this year.

In its July update to its World Economic Outlook, the IMF said Tuesday its revision was guided by stronger growth in the fourth-quarter last year, powered by domestic investment. Its 2024 projection for 6.3% growth in India stayed unchanged from its April projection.

The forecasts underscore India's emergence as a bright spot for global growth. This comes as China's star wanes and Beijing seeks to reflate faltering growth momentum, while staying the course in its bid to rebalance the world's second-largest economy.

Still, the IMF expects China to grow by 5.2% this year and 4.5% next year. While the projections were unchanged from the April outlook, the IMF now expects China growth to be driven by consumption, which it said should negate the underperformance in investment dragged by the downturn in real estate.

Late Monday, China's top leaders pledged to "adjust and optimize policies in a timely manner" for its beleaguered property sector, while elevating stable employment to a strategic goal. They also pledged to boost domestic consumption demand and resolve local debt risks.

The IMF expects India and China to drive growth in emerging and developing Asia, which it projects to grow 5.3% this year and 5% next year — it downgraded its 2024 regional forecast by 0.1 percentage point.

Growth in Japan is projected to hit 1.4% in 2023, reflecting a modest 0.1 percentage point upward revision, due to pent-up demand and Tokyo's accommodative policies. The IMF then expects growth in the Japanese economy to slow to 1.0% in 2024, as the effects of past stimuli dissipate.

The IMF raised its 2023 global growth prediction by 0.2 percentage point to 3%, up from 2.8% in its April assessment. The figure highlights concerns over tighter credit conditions, depleted household savings in the U.S. and a shallower-than-expected economic recovery in China from strict Covid-19 lockdowns. The IMF kept its 2024 growth forecast unchanged at 3%.