World Bank Lowers India's FY24 GDP Growth Forecast To 6.3%

The World Bank has upwardly revised its global growth forecast for 2023, attributing it to the resilience of major economies, including the United States. However, it cautioned that higher interest rates would have a larger negative impact than anticipated next year. 

Meanwhile, the bank lowered India's GDP growth projection for FY24 to 6.3 per cent, down from the earlier estimate of 6.6 per cent in January.

According to the Global Economic Prospects report, real global GDP is expected to increase by 2.1 per cent this year, surpassing the previous forecast of 1.7 per cent, but falling short of the 2022 growth rate of 3.1 per cent. 

The World Bank adjusted its global growth forecast for 2024 to 2.4 per cent, down from the 2.7 per cent predicted in January, citing the ongoing impact of tighter monetary policies on business and residential investments.

The bank anticipates a significant deceleration in growth for the remainder of 2023, as the effects of monetary tightening and more restrictive credit conditions continue to weigh on economic activity. These factors are expected to persist into the following year, resulting in global growth falling below previous projections. 

The World Bank forecasts a rebound in global growth to 3.0 per cent in 2025.

In January, the World Bank expressed concerns about the global economy nearing a recession. However, since then, the US labour market, consumer spending, and China's recovery from COVID-19 lockdowns have exceeded expectations. 

The growth forecast for the US in 2023 has been revised to 1.1 per cent, more than double the previous estimate of 0.5 per cent, while China's growth is expected to reach 5.6 per cent, compared to the previous forecast of 4.3 per cent in January, following a COVID-impacted growth rate of 3 per cent in 2022.

Nevertheless, the World Bank has halved its previous growth projection for the US in 2024 to 0.8 per cent and reduced China's forecast by 0.4 percentage points to 4.6 per cent. The euro zone's growth outlook for 2023 has improved to 0.4 per cent from a flat projection in January, albeit with a slight reduction in the forecast for the following year.

The World Bank also highlighted recent stress in the banking sector, which contributes to tighter financial conditions expected to persist until 2024. The bank presented a potential downside scenario in which banking stress triggers a severe credit crunch and broader financial market strain in advanced economies. 

It added that this would likely result in a sharp decline in growth to just 1.3 per cent in 2024, marking the slowest pace in 30 years, excluding the recessions of 2009 and 2020.