IMF's ECONOMIC OUTLOOK: A ROCKY RECOVERY .

 IMF's  analysis and projections contained in the half yearly "World Economic Outlook April 2023" on its surveillance of economic growth of member countries including policies, global economic system and international financial markets and global development indicate that the economic outlook predicts  a rocky recovery. Global economy is at a highly uncertain period due to cumulative effects of three years of adverse shocks- notably Covid19 pandemic, Russian invasion of Ukraine, sanctions induced dislocation of energy and goods market impact,commodity price spikes, supply chain disruptions, stickier global inflation and recent vulnerabilities to banking and financial crises.In the given scenario IMF's global growth projection is expected to  slow down to 2.8% in 2023 compared to 3.4% estimated for 2022. The average global growth which was 3.9% in 2005-14 remained less  than 4 for many  years till 2019 at 2.8% and-2.8% in2020and 6.3 in 2021.Global growth remained 3.4% in 2022 whereas IMF projected 2.8% for 2023 3.0 for 2024 and3.0 for 2028.In advanced economies average growth was 1.5 % during 2005-14   which ranged from 2.5 and 1.7 between 2015-19.In 2020 it was negative -4.2 and 5.4% in 2021,2.7% in  2022.Projected growth for advanced economies is 1.3% for 2023,1.4% for 2024 and 1.8% for 2028.While USA's average growth for 2005-14 remained  1.6% for 2005-14  it recorded 2.3% in 2019, -2.8% in 2020,5.9%in 2021 and 2.1 in 2022.Growth projections for USA are 1.6% in 2023,1.1% in 2024 and 2.1% in 2028.For Euro area 0.8 % was the average output growth for the period 2005-14, till 2019 it ranged between 2.6 and 1.6.In 2020 Euro area recorded a decline of-6.1% growth followed by 5.4% growth in 2021 and 3.5% in 2022. Growth projections indicated 1.3%,1.0% and o.4 % for 2023,2024 and 2028 respectively.  Japan growth was relatively low with 0.5% average during 2005-14 period and less than 2% from 2015 to 2018. In 2019 and 2020 Japan  experienced negative growth of -0.4 and--4.3 respectively. While in 2021 and 2022 Japan recorded 2.6% and 1.8 respectively IMF's projections for 2023,2024 and 2028 were only 1.3%,1.0% and 0.4%respectively. Even Though UK had shown 1.2% average growth during 2005-14  by 2020 its growth fallen very low to -11% followed by 9.6% in 2021 and 4.0% in 2022 with forecast of -0.3% in 2023,1.0% in 2024 and 1.5% in 2028.Emerging Market Developing economies (EMDEs) as such performed relatively better with  6.1% average growth between 2005-14  and during the period 2015 to 2018 growth remained between 4.4 and 4.7.In 2019 growth declined to 3.6% followed by a negative growth rate of -1.8% during 2020 covid period and 6.9% in 2021 and 4.0% in 2022.EMDEs is projected to grow 3.9% in 2023,4.2% in 2024 and 3.9% in 2028.

According to IMF Managing Director in the rocky recovery China and India together is projected to provide half of global growth, while China is rebounding strongly following reopening of the economy after Covid, India continues to remain relatively vibrant economy. While Chinese GDP growth remained 10% during the decade 2005-14.India accounted for 7.7% in the same period, However for 2015 and 2016 India recorded 8.0% and 8.3% as against China's 7.0% and 6.9%.In 2020  when China could achieve 2.2% growth India's performance was negative-5.8%. Due to the base effect in 2021 India achieved 9.1% as against 8.4% by  China. In 2022 India could achieve 6.8 % as against 3.0% in China. While Chinese growth projections are 5.2% for 2023,4.5% for 2024 and 3.4% for 2028,corresponding figures for India are 5.9% for 2023,6.3% for 2024 and 6.0 for 2028.It may be noted here that even though IMF has cut India's GDP forecast to 5.9 % for 2023 it commented India as a strong economy with digital innovation lead tech revolution. Infact South Asia contribute 15 % of global growth and the region recieved one fifth of global remittances 

Although IMF expects growth in India to improve in the forthcoming fiscal year but prevailing global economic conditions may not allow to achieve pre pandemic growth rate in the foreseeable future. Looking forward to 2028 ,the IMF forecasted global growth of 3% - the lowest medium term forecast since 1990.There are multiple risks even to achieve the forecasted global growth. There is 25% chance for global growth to slip below 2% in 2023.IMF's baseline projection assumed that problems in financial sector are contained. Central banks have raised interest rates sharply to control inflation which is expected to come down in 2023 which may take some time to achieve price stability. Higher public and private debt at a time of higher interest rates are bound to increase risks.Moreover geopolitical tensions like US  China rivalry and the invasion of Ukraine will adversely affect global efficiency and growth prospects. Already the growth in global trade volumes is projected to drop from 5.1% in 2022 to 2.4% in 2023.Like Covid19 pandemic geopolitical fragmentation also impact regional economies through different channels particularly trade, technology diffusion, cost of external financing, international factor mobility,risk, and provision of public good.However the global retail inflation continued to be high but projected to decline from 8.7% in 2022 to 7.0% in 2023.Disinflation is expected in all major country groups, with about 76% countries expected to experience lower headline inflation in 2023.Several emerging market and developing economies face sovereign debt distress largely due to steep increase in Government debt following Covid19 and also  rise in policy rates to combat inflation, A higher share of external borrowings were at variable interest rates and in US dollar implies greater exposure  to monetary tightening in advanced economies. On the other hand geo economic fragmentation leads to income losses for most countries, it hurts more the emerging markets and developing economies than advanced economies particularly from Africa and Central Asia. 

In many countries the financial sector will remain highly vulnerable due to rise in real interest rates both in banks and non bank financial institutions.As in the past episodes of global financial stress,a broad based outflow of capital from emerging market and developing economies could occur, causing further dollar appreciation which would worsen vulnerabilities in economies with dollar denominated external debt.As per the assessment of RBI Governor Indian banking system remains completely insulated from recent developments like that of US Silicon Valley Bank, Signature Bank's or Switzerland Credit Suisse bank,primarily due to their asset liability mismatch. We have significantly improved and tightened our regulation and supervision of the entire banking system including Non Banking Financial Companies (NBFCs).The parameters related to banking like capital adequacy or  the percentage of stressed assets or liquidity coverage ratio of individual banks or issues like provision coverage ratio,net interest margin, and profitability.According to RBI Governor Indian banking system is very resilient, stable and healthy.

In short, return of global economy to the pre Covid19 level is almost impossible in the short period on account of recent financial sector turmoil ,continued outbreak of more contagious Covid19 variant,rising inflation,indebtedness of  low income economies and  escalating unemployment.Central banks' intervention in interest rates to reduce inflation may take time to achieve price stability. If base line assumptions like moderate inflation, interest rate, and energy prices are prevailing ,both India and China together can effectively tackle emerging growth challenges and achieve a rocky recovery of the global economy. In any case regulatory authorities must be vigilant and prompt in taking actions against corporate frauds and manipulation in the stock market.