World Economic Outlook Report

• 25 Oct 2024

For Prelims: International Monetary Fund (IMF), World Economic Outlook (WEO), Pent-Up Demand, Headline Inflation, Global Slowdown, Reserve Bank of India (RBI), Monetary Policy Committee (MPC), Tight Monetary Policies In Advanced Economies, Global Headline Inflation  

For Mains: Significance of India’s economic projections, inflation trends, and global growth dynamics in India’s economic growth. 

Source: TH 

Why in News?

Recently, the International Monetary Fund (IMF) released its World Economic Outlook (WEO) report for October 2024. 

• In this, the IMF reaffirmed India's growth projections at 7% for FY2024 and 6.5% for FY2025. 

World Economic Outlook 

• Aboot: WEO is a key report produced by the International Monetary Fund and published biannually, in April and October. 
  • Focus: Provides analysis and projections for the global economy and individual countries. 
  • Purpose: Aims to assess economic developments, identify trends, and offer policy recommendations. 
• Components: 
  • Economic Growth Projections: Forecasts for global and regional economic performance. 
  • Inflation Trends: Insights into inflation rates and their implications. 
  • Financial Stability Assessment: Evaluates risks to financial systems and markets. 
• Importance: 
  • Serves as a critical tool for policymakers, researchers, and investors to understand and navigate the economic landscape. 

What are the Key Highlights of the WEO Report? 

• India Specific Findings: 
  • Growth Projections: It projected India's 7% growth for current fiscal year, highlighting slowdown from 8.2% in FY 2023-24. 
    • The decline is attributed to the exhaustion of pent-up demand (rapid increase in demand) post-pandemic as the economy reconnects with its potential growth trajectory. 
  • Inflation: Headline inflation (the total inflation rate in an economy, including all categories of goods and services) in India is expected to ease, projected at 4.4% for FY 2024-25 and 4.1% for FY 2025-26.  
    • This aligns with global trends of decreasing inflation after peaking during the pandemic. 
  • Domestic Demand: Despite the global slowdown, India’s consumption and investment momentum remain strong, supported by domestic policies and a favorable investment climate.  
    • Recently, the Reserve Bank of India (RBI) maintained its growth projection for the current financial year at 7.2% due to strong domestic demand. 
    • These factors could affect India's growth trajectory indirectly through external shocks.  
• Global Growth Projections:  
  • Global growth is forecasted to remain steady at 3.2% in 2024 and 2025.  
    • The IMF projects the U.S. economy to grow by 2.8% in 2024 and 2.2% in 2025, while China’s economy is expected to expand by 4.8% in 2024 and 4.5% in 2025. 
  • Sectoral Shifts: Goods prices remain higher than services due to the pandemic, with a shift toward services consumption expected globally. 
    • The global automotive industry is transforming as it shifts to electric vehicles (EVs), which will reduce emissions but may cause job losses in capital-intensive manufacturing sectors. 

What is the International Monetary Fund? 

• About: 
  • International Organization: Promotes global economic growth and financial stability. 
  • Encourages: International trade and reduces poverty. 
  • Established: In 1944 following the Bretton Woods conference. 
• Primary Goal: 
  • Initially aimed to foster international economic coordination to prevent countries from competing currency devaluation to boost exports. 
• Expansion: 
  • Became a lender of last resort for governments facing severe currency crises. 
• Reports by the IMF: 
  • Global Financial Stability Report 
  • World Economic Outlook 

What are Challenges Highlighted by the WEO Report? 

• Global Economic Slowdown: Medium-term global growth projections remain weak due to aging populations, weak investments, and slow productivity growth . 
  • Geoeconomic fragmentation and trade tensions pose significant risks to global supply chains and market efficiency. 
• Social Resistance to Reforms: Structural reforms, while necessary, often encounter significant public resistance, which typically arises from distrust, misinformation, and behavioral factors rather than economic concerns. 
• Fiscal Constraints and Debt: Elevated debt levels, especially in low-income and emerging market countries, require careful debt management to avoid fiscal distress.
• Climate and Energy Transition: The transition to clean energy, while essential, needs substantial investment and support, which is challenging for many economies under fiscal strain . 

What are the Key Recommendations Suggested by the WEO Report? 

• Structural Reforms: Policymakers should prioritize reforms in health, education, labor markets, and digitalization to address productivity bottlenecks and enhance long-term growth . 
• Social Acceptability Framework: Effective reform design should incorporate public consultations, build trust, and ensure clear communication to foster social acceptance. 
• Fiscal Policy Adjustments: Countries need gradual and credible fiscal adjustments to ensure debt sustainability while avoiding sharp cuts that could harm growth.  
  • Public investments, particularly in digital and infrastructure sectors, should continue for growth support . 
• Climate Resilience and Green Investments: Expanding climate financing, particularly for vulnerable countries, and implementing carbon pricing policies with WTO-compliant green subsidies are crucial steps to advancing the green transition .

Drishti Mains Question:

India’s growth trajectory shows resilience amidst global economic uncertainties. With reference to the World Economic Outlook report, discuss the internal and external factors that shape India's economic projections .

UPSC Civil Services Examination Previous Year Questions (PYQ) 

Prelims:

Q. ‘Global Financial Stability Report’ is prepared by the (2016)

(a) European Central Bank 

(b) International Monetary Fund 

(c) International Bank for Reconstruction and Development 

(d) Organization for Economic Cooperation and Development 

Ans: (b)