India and China will account for half of the global economic growth in 2023 versus just a tenth for the US and euro area combined, said the International Monetary Fund in its latest update to the biannual World Economic Outlook. The multilateral agency retained its growth forecast for Asia’s third-largest economy for 2023-24 (FY24).

The IMF on Tuesday released the January update of its World Economic Outlook, according to which the global growth is projected to fall from an estimated 3.4 percent in 2022 to 2.9 percent in 2023, then rise to 3.1 percent in 2024.

Leading the growth charge in 2023, India continues to be seen growing over 6% this year and next, while the upward revision of China by 0.8 percentage point sets it on track for growth above 5% this year.

"If we look at both China and India together, they account for about 50% of world growth in 2023 ... so a very significant contribution," said Pierre-Olivier Gourinchas, chief economist and director of the research department at the IMF. 

"India remains a bright spot. Together with China, it will account for half of global growth this year, versus just a tenth for the US and euro area combined. Global inflation is expected to decline this year but even by 2024, projected average annual headline and core inflation will still be above pre-pandemic levels in more than 80 percent of countries," said Gourinchas. 

The IMF said global inflation is expected to decline in 2023 but even by 2024, projected average annual headline and core inflation would still be above pre-pandemic levels in more than 80 per cent of countries. 

Growth in India is set to decline from 6.8 per cent in 2022 (FY23) to 6.1 per cent in 2023 (FY24) before picking up to 6.8 per cent in 2024 (FY25), the global lender said while citing “resilient domestic demand despite external headwinds”. 

The Washington-based multilateral lender raised its global growth forecast for 2023 by 20 basis points to 2.9 per cent, holding that the balance of risks remained tilted to the downside, but adverse risks had moderated since its October 2022 report. 

While the IMF made a marginal upward revision to its global growth forecast for 2023, it retained its projection for India for 2022-23 and 2023-24 at 6.1 percent and 6.8 per cent, respectively, and termed India as a 'bright spot.' 

“Our growth projections actually for India are unchanged from our October Outlook. We have 6.8 percent growth for this current fiscal year, which runs until March, and then we're expecting some slowdown to 6.1 percent in fiscal year 2023. And that is largely driven by external factors," Pierre-Olivier Gourinchas, Chief Economist and Director, Research Department of the IMF told reporters in Washington. 

"The global economy is poised to slow this year, before rebounding next year. Growth will remain weak by historical standards, as the fight against inflation and Russia’s war in Ukraine weigh on activity," said Pierre-Olivier Gourinchas, Economic Counsellor and the Director of Research of the IMF. 

Despite headwinds, the outlook is less gloomy than IMF's October forecast, and could represent a turning point, with growth bottoming out and inflation declining. 

"Economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe. Inflation, too, showed improvement, with overall measures now decreasing in most countries—even if core inflation, which excludes more volatile energy and food prices, has yet to peak in many countries. Elsewhere, China’s sudden re-opening paves the way for a rapid rebound in activity. And global financial conditions have improved as inflation pressures started to abate. This, and a weakening of the US dollar from its November high, provided some modest relief to emerging and developing countries," said Gourinchas.