Unidirectional lowering of growth forecasts by IMF is worrisome: Sachchidanand Shukla

Mahindra Group chief economist Sachchidanand Shukla

The International Monetary Fund (IMF) lowering global growth downwards is a matter of serious concern, said Mahindra Group chief economist Sachchidanand Shukla. He believes that the most recent downgrade follows a trajectory of unidirectional lowering of growth forecasts by the IMF since the global financial crisis (GFC).

He has expressed his concern through a tweet: “Forecast revisions are normal but the real worrisome part is the unidirectionality of these forecasts from #IMF. Ever since #GFC fcsts have been revised only downwards & repeatedly. Note the <3% fcst for next 5 yrs is the lowest since 1990 & < 3.8% avg for the past 2 decades.”

Shukla elaborated on the issue in a recent conversation with Moneycontrol about his views on the recent IMF downgrade, the global economy and the Indian stock market going ahead.

On the issue of IMF’s recent forecast, he said, “The IMF avers that global GDP will grow by around 3 percent per annum for the next five years.  This is the worst medium-term outlook since the 1990s and below the 3.8 percent average over the last 20 years. The war in Ukraine and still higher inflation have combined with the reversal in all major drivers of global growth i.e., globalisation, peace dividend, etc., leading to this dire prognosis.”

Asked where the global economy is headed after the recent rate hikes by the US Federal Reserve, he said, “Global growth is likely to be lower than the potential growth rate not just in CY23 but also in the foreseeable future unless supply side including labour markets along with geopolitical, social and technological disruptions normalise. However, the good part is that in such a growth-starved world, a relatively faster growing major economy like India will become really important and its contribution to global growth will be key.”

About the Indian stock market, he stated, “A lot of this uncertainty is already baked into markets and asset prices. Given the extremely volatile and divergent outlook, markets will favour asset classes or economies that show a surer and steadier trajectory, i.e., in the incremental growth-inflation trajectory and policy stability, etc.”

Gloomy outloook

The IMF recently lowered the global growth outlook and projected a dismal picture for the global economy. “Global GDP will grow by around 3 percent a year for the next five years,” IMF managing director Kristalina Georgieva said in a recent speech in Washington. “That’s a downgrade from previous forecasts, the worst medium-term outlook since 1990, and below the 3.8 percent average over the last 20 years.”

She added, “The consequences of the invasion (referring to the Russia-Ukraine conflict) underscore the need for international cooperation to avoid future wars. This calamity not only kills innocent people, it also worsens the cost-of-living crisis and brings more hunger around the world, It risks wiping out the peace dividend we have enjoyed for the past three decades, adding also to frictions in trade and finance.”

She also called on governments to resist cordoning themselves off into competing economic blocs, citing IMF research estimating that the potential fragmentation of trade could reduce global growth by as much as 7 percent.