Global outlook less gloomy, India a bright spot: IMF's top economist Pierre-Olivier Gourinchas

Gourinchas, the IMF's top economist, said India and China will be the major engines of global growth in 2023.

The global growth outlook is less gloomy than it was in October, the International Monetary Fund's (IMF) top economist Pierre-Olivier Gourinchas has said.

Despite the headwinds posed by the rapid monetary tightening to tackle high inflation and the Russia-Ukraine conflict, Gourinchas said the current situation "could represent a turning point, with growth bottoming out and inflation declining".

"The inflation news is encouraging, but the battle is far from won," Gourinchas said in a blog post released on January 31 along with the IMF's update to its World Economic Outlook report.

"Monetary policy has started to bite, with a slowdown in new home construction in many countries. Yet, inflation-adjusted interest rates remain low or even negative in the euro area and other economies, and there is significant uncertainty about both the speed and effectiveness of monetary tightening in many countries," Gourinchas added.

In the update to its report, the IMF said negative growth in global GDP, which often happens when there is a global recession, is not expected. The multilateral agency raised its global growth forecast for 2023 by 20 basis points to 2.9 percent.

One basis point is one-hundredth of a percentage point.

Bright spot India

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 percent, respectively.

However, Gourinchas noted that India "remains a bright spot".

"Together with China, it (India) will account for half of global growth this year, versus just a tenth for the US and euro area combined," he added.

China's re-opening is set to result in a quick rebound, with the IMF raising its 2023 growth forecast for the world's second largest economy by 80 basis points to 5.2 percent.

However, the agency warned that Chinese growth may fall to 4.5 percent in 2024 "before settling at below 4 percent over the medium term amid declining business dynamism and slow progress on structural reforms".

On the policy front, Gourinchas warned central banks could not rest until inflation had fallen decisively.

"Where inflation pressures remain too elevated, central banks need to raise real policy rates above the neutral rate and keep them there until underlying inflation is on a decisive declining path," he said.

"Easing too early risks undoing all the gains achieved so far."