Economy

Economy

IMF keeps developing Asia 2023 growth forecast at 5.3%: trims India projections

Date: 12th Apr, 2023

Source: ICIS

The International Monetary Fund (IMF) has kept its 2023 growth forecast for developing Asia at 5.3% but trimmed its forecast for next year amid rising risks in global financial conditions. For 2024, these economies were projected to post a slower growth of 5.1%, down from the previous estimate of 5.2%, according to the IMF World Economic Outlook (WEO) Update released on 11 April.

China, India, Indonesia, Thailand, Malaysia, Vietnam and Philippines belong to the IMF category of emerging and developing nations in Asia.

For China, the world’s second-biggest economy and Asia’s largest, GDP growth forecasts were maintained - at 5.2% in 2023 and a slowdown to 4.5% in 2024. The economy posted a 3.0% growth in 2022. "With China absorbing about a quarter of exports from Asia and between 5% and 10% from other geographic regions, the reopening and growth of its economy will likely generate positive spillovers, with even greater spillovers for countries with stronger trade links and reliance on Chinese tourism," the IMF said.

For the giant emerging market of India, however, the pace of expansion is projected to slow to 5.9% this year from 6.8% in 2022, before accelerating to 6.3% in 2024. GDP growth expectations for the south Asian nation were trimmed from previous estimates.

The country is grappling with high inflation, to which it responded with high interest rates that, in turn, undermine consumption further. Weak external demand is also expected to take a toll on the economy.

Other multilateral institutions such as the World Bank (WB) and the Asian Development Bank (ADB) have likewise cut their GDP growth forecast for India in the next two years.

Downside risks abound

The global economy’s gradual recovery from both the COVID-19 pandemic and the implication of Russia’s invasion of Ukraine remains on track, IMF chief economist said Pierre-Olivier Gourinchas said. "The unexpected failures of two specialized regional banks in the United States in mid-March 2023 and the collapse of confidence in Credit Suisse - a globally significant bank - have roiled financial markets, with bank depositors and investors reevaluating the safety of their holdings and shifting away from institutions and investments perceived as vulnerable," the IMF said. "Uncertainty is high, and the balance of risks has shifted firmly to the downside so long as the financial sector remains unsettled," it said.

Based on IMF's projections, global growth will bottom out at 2.8% this year before rising modestly to 3% next year. The forecast for 2024 was lower than the previous estimate of 2.9%. "Global inflation will fall, though more slowly than initially anticipated, from 8.7 percent last year to 7% this year and 4.9% in 2024," Gourinchas said.

India's economic growth projected to decelerate to 6% in 2023: UN

Date: 12th Apr, 2023

Source: Business Standard

India's economic growth is projected to decelerate to 6 per cent in 2023 from 6.6 per cent in 2022, according to the United Nations.

The UN Trade and Development Conference (UNCTAD) in its latest Trade and Development Report Update released Wednesday expects global growth in 2023 to drop to 2.1%, compared to the 2.2% projected in September 2022, assuming the financial fallout from higher interest rates is contained to the bank runs and bailouts of the first quarter.

It warned that developing countries are facing years of difficulty as the global economy slows down amid heightened financial turbulence. Annual growth across large parts of the global economy will fall below the performance registered before the pandemic and well below the decade of strong growth before the global financial crisis.

The report said that India grew 6.6 per cent in 2022, ceding the pole position among G20 countries in 2022 to oil-rich Saudi Arabia, which grew at 8.6 per cent. Meanwhile, as current government spending has been weakening, but export orders remain on the rise, India's GDP growth is projected to decelerate to 6.0 per cent in 2023.

For India, it said the positive effect of high public and private investment and consumption as well as rising exports was partly offset by higher energy import bills, which deepened the current account deficit and ate up reserves. "The Reserve Bank of India started tightening its policy stance during the spring of 2022 to limit damage caused by foreign capital outflows, a weakening currency and inflation risks. Higher financing cost slightly dented buoyant economic activity, and over-leveraging in the corporate sector may become a factor of financial instability," the report said.

In view of financing its growth ambitions, the Indian Government has committed to massive infrastructure investment. In 2020 and 2021 and in the energy sector alone, funds amounting to USD 160 billion had been committed to fossil and non-fossil projects alike, the report noted.

South Asia registered a growth of 5.7 per cent in 2022 but the stark rise in already high poverty rates has not abated yet. UNCTAD expects the region to expand at a still fast pace of 5.1 per cent in 2023, "driven by the growth of its largest economy, India."

Strong dependence on extra-regional fossil imports will keep the region vulnerable to inflationary pressures, which may trigger further monetary tightening while public spending may be curtailed by budgetary pressures, it added.

The report further said that highly indebted South Asian countries, such as Sri Lanka or Bangladesh, will keep facing pressures from external creditors to cut public spending and cancel social, productive and climate adaptation investments.

The report projected that the US, which grew at 2.1 per cent in 2022, will see growth slow down to 0.9 per cent in 2023. China, which grew at 3 per cent last year will see its growth accelerate to 4.8 per cent in 2023.
UNCTAD said that many developing countries face a deepening development crisis as soaring debt levels and higher servicing costs squeeze productive investment in both the public and private sectors. A shortfall of international liquidity has already turned unforeseen shocks into a vicious financial cycle in some countries.
UNCTAD found that 81 developing countries (excluding China) lost USD 241 billion in international reserves in 2022, an average decline of 7%, with over 20 countries experiencing a drop of over 10% and in many cases exhausting their recent addition of Special Drawing Rights (SDRs).
Meanwhile, borrowing costs, measured through sovereign bond yields, increased from 5.3% to 8.5% for 68 emerging markets. Overall, external creditors' pressure on developing countries to reduce fiscal deficits is expected to increase.
Both the banking crisis and the cost-of-living crisis have shed light on the opacity and increased concentration of market power in key industries and UNCTAD calls for the closing of the loopholes in financial reform launched in the wake of the 2007-09 crisis, for the widening of the scope of systemic oversight and for closer regulation of shadow banking institutions.
"To adequately address developing countries' needs, the financial multilateral agenda requires strengthening, with an urgent focus on the reform of the debt architecture. UNCTAD calls for the establishment of a multilateral debt workout mechanism, a registry of validated data on debt transactions from both lenders and borrowers, and improved debt sustainability analyses that incorporate development and climate finance needs, it said.
The combined impact of higher interest rates and elevated energy and food prices in the context of receding fiscal support is expected to further weaken household spending, including on housing. Business investment, buffeted by financial turbulence, is also expected to slow down further or contract, it said.
Annual growth across large parts of the global economy will fall below the performance registered before the pandemic and well below the decade of strong growth before the global financial crisis with a potentially devastating effect on the economies of developing countries. This will further deepen the cost-of-living crisis that their citizens are currently facing and magnify inequalities worldwide.
The International Monetary Fund (IMF) on Tuesday lowered India's economic growth projection for the current fiscal to 5.9 per cent from 6.1 per cent earlier.

IMF sees India's combined debt-to-GDP ratio rising for 4 years starting FY24

Date: 12th Apr, 2023

Source: Business Standard

After declining for two straight years till FY23, India’s debt-to-GDP ratio is set to follow an upward trajectory for next four financial years starting FY24, the International Monetary Fund (IMF) projected. In its latest Fiscal Monitor report, the IMF said India’s combined debt-to-GDP ratio (Centre plus states) will rise a tad to 83.2 per cent in FY24 and will hit a high of 83.8 per cent in FY27 before it starts to moderate.

As the Covid-19 pandemic hit the economy, substantially reducing revenues and increasing government expenditure, India’s public debt-to-GDP ratio shot up from 75 per cent in FY20 to 88.5 per cent in FY21. However, it gradually reduced to 83.1 per cent in FY23 as revenues and expenditure stabilised.

The IMF projected that India’s combined fiscal deficit (Centre + states), which hit a high of 12.9 per cent in FY21 will continue to moderate to touch 7.6 per cent in FY29.

Without naming India, the report said under current projections, the envisaged gradual and moderate fiscal tightening will not be sufficient to prevent public debt ratios from resuming an upward trend, as nominal GDP slows, driven by some large advanced and emerging market economies. “Interest payments as a share of revenues in emerging market economies and low-income developing countries are expected to remain higher over the medium term than before the pandemic,” it added.

However, Paolo Mauro, deputy director, fiscal affairs department at the IMF said the debt to GDP ratio in India would remain stable in the medium term unlike some other large economies where the Fund sees a continued increase. “The debt ratio in India right now is 83 per cent, so it’s high. The good news is that it is largely in domestic currency held domestically. It’s also fairly long maturity, so those are the positives. The other positive is that because we project very strong economic growth into the medium term, that is going to allow the debt to remain stable,” he added.

The IMF said the role of inflation surprises in debt reduction during 2022 was shaped by individual countries’ debt size and composition. “Countries with high initial levels of debt, combined with large inflation surprises and strong growth, experienced significant debt declines (Greece). In some emerging market economies, on the other hand, rising interest rates almost fully offset the impact of inflation surprises (India),” it added.

The report clarified that IMF’s estimates differ from the Indian government, particularly regarding disinvestment and license-auction proceeds, net versus gross recording of revenues in certain minor categories, and some public sector lending. “Starting with FY2020/21 data, expenditure also includes the off-budget component of food subsidies, consistent with the revised treatment of food subsidies in the budget. The IMF staff adjusts expenditure to take out payments for previous years’ food subsidies, which are included as expenditure in budget estimates for FY2020/21,” it added.

Global economy's growth speed limit to slump by 2030: World Bank

Date: 29th Mar, 2023

Source: F2F news

Global economy's maximum long-term growth rate, without causing inflation, is set to decline to a three-decade low by 2030, according to a new report from the World Bank. The report shows that nearly all of the economic forces that have driven progress and prosperity over the past 30 years are beginning to fade, resulting in a projected decline in average global potential GDP growth from 2.2 per cent to 6 per cent per year for developing economies between 2022 and 2030.

The global economy can improve productivity, the labour supply, investment, and trade. If countries adopt sustainable growth-oriented policies, potential GDP growth can be increased by as much as 0.7 percentage points to 2.9 per cent annually, which would help offset the anticipated slowdown in global potential GDP growth, as per World Bank’s ‘Falling Long-Term Growth Prospects: Trends, Expectations, and Policies’ report.

The report provided specific policy recommendations at the national level to promote long-term growth prospects. The policies include aligning monetary, fiscal, and financial frameworks to ensure stability, reducing trade costs, increasing labour force participation, and ramping up investments. The report also stressed the need to strengthen global cooperation to catalyse trade, accelerate climate action, and mobilise investments necessary to achieve sustainable development goals.

Furthermore, the report introduced the world's first comprehensive public database of multiple measures of potential GDP growth, covering 173 economies from 1981 to 2021. It also evaluates how a range of short-term economic disruptions, such as recessions and systemic banking crises, reduce potential growth over the medium term.

Countries should prioritise taming inflation, reducing debt, and restoring fiscal prudence. These policies can help attract investment by instilling investor confidence in national institutions and policymaking. Policymakers can also make sound investments aligned with climate goals in areas such as transportation, energy, agriculture, and manufacturing, which can enhance potential growth by up to 0.3 percentage points per year, the report added.

“A lost decade could be in the making for the global economy,” said Indermit Gill, the World Bank’s chief economist and senior vice president for development economics. “The ongoing decline in potential growth has serious implications for the world’s ability to tackle the expanding array of challenges unique to our times—stubborn poverty, diverging incomes, and climate change. But this decline is reversible. The global economy’s speed limit can be raised—through policies that incentivise work, increase productivity, and accelerate investment.”

Govt taking steps to make India USD 5 trn economy 'at an early date': FinMin

Date: 14th Mar, 2023

Source: Economic Times

The government informed the Rajya Sabha that it is taking steps to make India a USD 5 trillion economy earlier than the International Monetary Fund's forecast year of 2026-27. The IMF's World Economic Outlook earlier said the size of the Indian economy will increase from USD 3.2 trillion in 2021-22 to USD 3.5 trillion in 2022-23 and cross USD 5 trillion in 2026-27. "The government has been taking steps to make the country a USD 5 trillion economy at an early date," Minister of State for Finance Pankaj Chaudhary said in a written reply to the Upper House. Observing that the outbreak of the COVID pandemic in 2020 and the Russia-Ukraine conflict in 2022 has impacted the world output, increased inflation in several countries and raised uncertainty in the world economy, he said, "lower uncertainty in the global economic outlook will help India become a USD 5 trillion-dollar economy earlier". Some of the important measures taken by the government in the past to boost economic growth include the making of the National infrastructure pipeline of projects, push to capital expenditure, implementation of the Production Linked Incentive (PLI) scheme, finalisation of the National Monetization Pipeline of public sector assets and formulation of National Logistics policy, he said.

The minister further said that capital expenditure will be speeded up by PM Gatishakti for integrated planning of infrastructure and synchronised project implementation across all concerned central ministries, departments and state governments.

The Union Budget 2023-24, Chaudhary said, "further sustains the growth momentum with an increase in capital investment outlay for the third year in a row by 33 per cent to Rs 10 lakh crore (3.3 per cent of GDP)".

The other initiatives to boost the economy include enhanced outlay for PM Awas Yojana, the launch of the Aspirational Blocks programme covering 500 blocks for saturation of essential government services; an increase in agriculture credit target to Rs 20 lakh crore with a focus on animal husbandry, dairy and fisheries; and setting up of Agriculture Accelerator Fund to encourage agri-startups by young entrepreneurs in rural areas, among others. The minister also said that the direct capital investment by the Centre is being complemented by the provision made for the creation of capital assets through grants-in-aid to states. The 'effective capital expenditure' of the Centre is budgeted at Rs 13.7 lakh crore (4.5 per cent of GDP) for 2023-24, he said, adding "the newly established Infrastructure Finance Secretariat will oversee the increase in private investment in infrastructure".

In order to improve logistics performance, he said, one hundred critical transport infrastructure projects for last and first-mile connectivity for ports, coal, steel, fertiliser, and food grains sectors have been identified and will be prioritised for development.

Moody's ups India's growth projection for 2023 to 5.5% on higher capex

Date: 01st Mar, 2023

Source: Business Times

Moody's Investors Service on Wednesday raised India's economic growth estimate for 2023 to 5.5 per cent from 4.8 per cent pegged earlier, on the back of a sharp increase in capital expenditure in the Budget and a resilient economic momentum.


It however revised downwards India's growth estimate for 2022 to 6.8 per cent from 7 per cent pegged in November last year. In its February update to Global Macro Outlook 2023-24, Moody's raised the baseline 2023 real growth projections "meaningfully" for several G20 economies, including the US, Canada, the Euro area, India, Russia, Mexico, and Turkiye, accounting for a stronger end to 2022.


"In the case of India, the upward revisions additionally incorporate the sharp increase in capital expenditure budget allocation to Rs 10 trillion (3.3 per cent of GDP) for fiscal year 2023-24, up from Rs 7.5 trillion for the fiscal year ending in March 2023," Moody's said while projecting a 70 basis points increase in 2023 real GDP growth at 5.5 per cent and 2024 growth at 6.5 per cent.


It said India's growth projection has been "meaningfully raised" as strong data in the second half of 2022 created large carry-over effects for 2023. Moody's said economic momentum in a number of large emerging market countries, including India, has proved more resilient to last year's tightening in the global and domestic financial environment than it had anticipated.


An eventual let-up in monetary policy tightening in the US will help stabilise, if not improve, capital flows to emerging market countries. However, until inflation in advanced economies is firmly in check, emerging markets will remain vulnerable to bouts of heightened financial market volatility, it said.


With regard to global growth, Moody's said the year 2023 started on a seemingly optimistic note for the global economy following positive surprises on several fronts, including the lifting of COVID-related restrictions in China, unseasonably warm weather that has helped Europe cope with the energy crisis far better than had been expected, and improved financial conditions.


Still, Moody's expects global growth to continue to slow in 2023, with increasing drag from cumulative monetary policy tightening on economic activity and employment in most major economies. "We forecast G-20 global economic growth will downshift to 2 per cent in 2023 from 2.7 per cent in 2022, and then to improve to 2.4 per cent in 2024." For China, Moody's estimated GDP growth at 5 per cent in 2023, up from 3 per cent in 2022.


India's direct tax collections up 4% to Rs. 15.67 lakh crore till February 10

Date: 12th Feb, 2023

Source: Economic Times

India's Direct Tax collections, between April 1, 2022, and February 10, 2023, rose 24.09% to Rs. 15.67 lakh crore, according to the Finance Ministry.

After adjusting for refunds, the net Direct Tax collection was Rs. 12.98 lakh crore which is 18.40% higher than the net collections for the corresponding period of last year. This collection is 91.39% of the total Budget Estimates of Direct Taxes for F.Y. 2022-23 and 78.65% of the Revised Estimates of Direct Taxes for F.Y. 2022-23.

The Corporate Income Tax grew at 19.33% while Personal Income Tax saw 29.63 per cent growth.

After adjustment of refunds, the net growth in corporate tax collections stood at 15.84% and that in personal tax collections is at 21.93% (PIT only)/ 21.23% (PIT including STT), according to latest data.

The govt further said that refunds amounting to Rs. 2.69 lakh crore have been issued during 1st April, 2022 to 10th February 2023, which are 61.58% higher than refunds issued during the same period in the preceding year.

The government has projected a 10.5 per cent growth in revenues from corporate and individual income tax to Rs 18.23 lakh crore in the next fiscal.

FY23 revenue from direct tax, which includes income and corporate taxes, is projected to grow by over 17% to Rs 16.50 lakh crore from Rs 14.08 lakh crore in FY22.

Between April 1 last year and February 10 this year, growth in gross corporate income tax (CIT) and gross personal income tax (PIT) collections was 19.33% and 29.63%, respectively, from the year-ago period. After adjusting for refunds, CIT was up 15.84% and PIT was up 21.23%. PIT included securities transaction tax.

India's industrial production index grows 4.3% in December

Date: 11th Feb, 2023

Source: Economic Times

Chem Industrial production expanded for the second consecutive month in December, but growth eased to 4.3% from 7.3% in the preceding month, as tepid manufacturing took the sheen off the sharp rebound in mining and electricity. The unfavorable base effect also contributed to the moderation, masking what experts said was a robust performance in the month.

Mining output surged 9.8% in December from a year earlier while electricity generation clocked a 10.4% rise in the month, data released on Friday showed. Manufacturing, which has the highest 77.6% weight in the Index for Industrial Production (IIP), returned a modest 2.6% growth.

"India's industrial output remained robust in December... In level terms, output was the highest since March 2022. On a rolling basis, though, IIP still remains relatively weak," said Rahul Bajoria of Barclays.

Output Up 5.4% in Nine Months

"Looking deeper into the IIP growth showed that while the momentum in industrial activity continued, the unfavourable base weighed on the IIP growth," said Rajani Sinha, chief economist, CARE Ratings. The infrastructure and construction sector reported an 8.2% expansion from a year earlier. Capital goods output, a proxy for investments, rose a strong 7.6% in December but growth dropped sharply from 21.6% in November, which itself got a boost from the low base of November 2021. Consumer durables production, an indicator of urban demand, contracted by 10.4%, while the production of more rural-focused consumer non-durables expanded by 7.2%.

"On the whole, the infra-related industries are showing good traction while it is volatile for consumer goods as the main season is over and the pent-up demand syndrome has gotten diluted," said Madan Sabnavis, chief economist, Bank of Baroda. In the first nine months of FY23 (April-December), industrial output was up 5.4% compared with a 15.3% rise in the corresponding period a year earlier. The first advance estimates released last month showed that the economy is likely to expand 7% in the current fiscal year. Growth is expected to pick up in the coming months but a slowdown in exports because of the adverse global situation is a risk.

RBI MPC: GDP growth outlook for FY24 pegged at 6.4%

Date: 08th Feb, 2023

Source: Economic Times

Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday said at the Monetary Policy Committee (MPC) in its February meeting has pegged real GDP growth for FY24 at 6.4%. The first advance estimate pegged FY23 GDP growth at 7%.

The MPC has forecast Q1FY24 growth at 7.8%, Q2 at 6.2%, Q3 at 6% and Q4 at 5.8%.

The MPC in its December 2022 meeting had forecast real GDP growth for 2022-23 at 6.8%, with Q3 at 4.4% and Q4 at 4.2%. Real GDP growth for Q1FY24 was projected at 7.1% and at 5.9% for Q2.

“Even after this revision in our growth projection for 2022-23, India will still be among the fastest growing major economies in the world,” Das had said back then.

The Economic Survey 2022-23 projects a baseline GDP growth of 6.5 per cent in real terms in the next financial year. The projection is broadly comparable to the estimates provided by multilateral agencies such as the World Bank, the IMF, and the ADB and by RBI domestically.

The economy is expected to grow at 7 per cent in real terms for the year ending March 2023. This follows an 8.7 per cent growth in the previous financial year.
 
The optimistic growth forecasts stem from a number of positives like the rebound of private consumption given a boost to production activity, higher Capital Expenditure (Capex), near-universal vaccination coverage enabling people to spend on contact-based services, such as restaurants, hotels, shopping malls, and cinemas, as well as the return of migrant workers to cities to work in construction sites leading to a significant decline in housing market inventory, the survey said.

India's forex kitty jumps USD 3.03 bn to USD 576.76 bn in third weekly rise

Date: 03rd Feb, 2023

Source: Economic Times

India's forex reserves increased by USD 3.034 billion to USD 576.76 billion as of January 27, making it the third consecutive week of a jump in the kitty. The overall reserves had risen by USD 1.727 billion to USD 573.727 billion in the previous reporting week.

It can be noted that in October 2021, the country's forex kitty had reached an all-time high of USD 645 billion. The reserves have been declining as the central bank deploys the kitty to defend the rupee amid pressures caused majorly by global developments.

For the week ended January 27, the foreign currency assets, a major component of the reserves, increased by USD 2.66 billion to USD 509.018 billion, according to the Weekly Statistical Supplement released by the RBI on Friday.

 Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.

The gold reserves continued to rise, increasing by USD 316 million to USD 44.027 billion, the RBI said.

The Special Drawing Rights (SDRs) were up by USD 46 million to USD 18.478 billion, the apex bank said.

 The country's reserve position with the IMF was up by USD 11 million to USD 5.238 billion in the reporting week, the apex bank data showed.