In its latest Global Economic Prospects report, the World Bank announced an upward revision in the 2023 global growth forecast, citing the resilience of major economies, including the United States, surpassing previous expectations. However, the World Bank lowered India's growth outlook for FY2023/24 (April-March) to 6.3%, marking a downward revision of 0.3 percentage points from January.
The report stated that global growth is projected to slow down to 2.1% in 2023, with financial risks clouding prospects. Nevertheless, this represents an improvement from the 1.7% forecast issued in January. The World Bank highlighted that global growth has significantly decelerated, and the risk of financial stress in emerging markets and developing economies has intensified due to elevated global interest rates. Nonetheless, the bank predicted a rebound in global growth to 3.0% by 2025.
Previously, the World Bank had expressed concerns about the global GDP slowing toward a recession. However, since then, the labor market and consumption in the U.S. have displayed greater strength than anticipated, along with China's recovery from COVID-19 lockdowns.
Ajay Banga, the newly-appointed World Bank Group President, emphasized that employment is the most effective means to reduce poverty and promote prosperity. Slower growth makes job creation more challenging.
Regarding India, the World Bank forecasted a slowdown to 6.3% growth in FY2023/24 due to constraints on private consumption caused by high inflation and rising borrowing costs, as well as fiscal consolidation impacting government consumption. The World Bank noted that the South Asia region (SAR) faced significant negative spillovers from tight monetary policies in advanced economies, weak growth in China, and the Russian Federation's invasion of Ukraine. However, the report indicated that the peak impact of these shocks appears to have passed in 2023, and regional economic conditions have improved. Favorable terms of trade since the second half of 2022 and receding large trade deficits caused by high import commodity prices contributed to better conditions.
Nevertheless, the report acknowledged a continued slowdown in growth momentum. It highlighted that manufacturing in India rebounded in 2023 after a contraction in the second half of 2022, and investment growth remained strong due to increased government capital expenditure. Private investment also likely received a boost from rising corporate profits. Unemployment declined to 6.8% in the first quarter of 2023, the lowest since the onset of the COVID-19 pandemic, and labor force participation increased. India's headline consumer price inflation has returned to within the central bank's 2-6 percent tolerance band. Recently released data showed that India's economic growth accelerated to 6.1% in the March quarter, driven by government and private capital spending, despite sluggish private consumption. The full-year growth estimate was revised to 7.2% from the previous estimate of 7%. For the fiscal year 2023-24, the government expects growth to remain around 6.5%, despite emerging risks from a global slowdown.