India, China to contribute more than half of global growth this year: IMF

Due to fading supply-chain disruptions and the boom in the service sector, India and China will contribute more than 50 per cent of the global growth in the upcoming year, the International Monetary Fund (IMF) said in a blog post on Monday. Asia will be a major driver of global growth, with other countries, apart from China and India, contributing another 25 per cent.

“These economies are hitting their stride as pandemic supply-chain disruptions fade and the service sector booms,” it said. “Cambodia, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam are all back to their robust pre-pandemic growth”.

It added that inflation in India is expected to moderate in the coming year.

“There are now encouraging signs that headline inflation peaked during the second half of last year, though core inflation is proving more persistent and has yet to ease definitively. We expect inflation to return to central bank targets sometime next year amid an easing of financial and commodity headwinds,” IMF said.

However, the central banks across the region need to stay “alert” as the core inflation is still high, and the re-opening of China’s economy may push inflation up due to higher demand.

“This means that central banks should tread carefully by reaffirming their commitment to price stability,” it said.

On February 8, the Reserve Bank of India (RBI) raised its key interest rate, repo rate, by 25 basis points to 6.25 per cent. Despite a cumulative hike of 250 basis points in the last year, the inflation in January was above the RBI’s upper tolerance limit of 6 per cent at 6.52 per cent.

The IMF said that the central banks may be required to raise interest rates further.

“Indeed, they may need to hike rates further if core inflation does not show clear signs of returning to target,” IMF added.

However, as the global headwinds have improved and food and oil prices have cooled down, Asia is expected to grow at 4.7 per cent in 2023 and 4.5 per cent in 2024, it said. In 2022, the region grew at 3.8 per cent.

Source: Business Standard