India’s GDP is projected to moderate to 5.8 per cent in 2023 as higher interest rates and global economic slowdown weigh on investment and exports, the United Nations said on Wednesday, noting that the country’s economic growth is expected to remain “strong” even as prospects for other South Asian nations “are more challenging”.
The World Economic Situation and Prospects 2023 report said the world output growth is projected to decelerate from an estimated three per cent in 2022 to 1.9 per cent in 2023, marking one of the lowest growth rates in recent decades as a “series of severe and mutually reinforcing shocks — the COVID-19 pandemic, the war in Ukraine and resulting food and energy crises, surging inflation, debt tightening, as well as the climate emergency — battered the world economy in 2022.” The report, produced by the United Nations Department of Economic and Social Affairs (UN DESA), said that in South Asia, the economic outlook has significantly deteriorated due to high food and energy prices, monetary tightening and fiscal vulnerabilities. Average GDP growth is projected to moderate from 5.6 per cent in 2022 to 4.8 per cent in 2023.
“Growth in India is expected to remain strong at 5.8 per cent, albeit slightly lower than the estimated 6.4 per cent in 2022, as higher interest rates and a global slowdown weigh on investment and exports,” it said.
The UN report said that “prospects are more challenging” for other economies in the South Asia region. Bangladesh, Pakistan and Sri Lanka sought financial assistance from the International Monetary Fund (IMF) in 2022.
While economic growth in India is projected to moderate in the calendar year 2023 to 5.8 per cent, with higher interest rates weighing on investment and slower global growth weakening exports, the report estimates that the country will grow at 6.7 per cent in 2024, the fastest-growing major economy in the world.
The report presents a gloomy and uncertain global economic outlook for the near term. Global growth is forecast to moderately pick up to 2.7 per cent in 2024 as some of the headwinds will begin to subside.
However, this is highly dependent on the pace and sequence of further monetary tightening, the course and consequences of the war in Ukraine, and the possibility of further supply-chain disruptions.
“This is not the time for short-term thinking or knee-jerk fiscal austerity that exacerbates inequality, increases suffering and could put the SDGs farther out of reach. These unprecedented times demand unprecedented action,” United Nations Secretary-General António Guterres said.
“This action includes a transformative SDG stimulus package, generated through the collective and concerted efforts of all stakeholders,” he added. China is projected to grow at 4.8 per cent in calendar year 2023 and 4.5 per cent in 2024, while the US is estimated to register a 0.4 per cent economic growth this year and 1.7 per cent in 2024.
Directions of trade in Russia have markedly changed since the war started, the report said adding that although Russian oil has been redirected to Asia and sold at a discount price, the total value of exports increased in 2022 as trade with China, India and Türkiye surged.
The current account surplus of Russia in the first three quarters of 2022 amounted to USD 198 billion versus USD 122 billion for 2021 as a whole.
The report said that amid high inflation, aggressive monetary tightening and heightened uncertainties, the current downturn has slowed the pace of economic recovery from the COVID-19 crisis, threatening several countries — both developed and developing — with the prospects of recession in 2023.
Growth momentum significantly weakened in the United States, the European Union and other developed economies in 2022, adversely impacting the rest of the global economy through a number of channels.
In India, annual inflation is estimated at 7.1 per cent in 2022, exceeding the 2 to 6 per cent medium-term inflation target band set by the Central Bank. India’s inflation is expected to decelerate to 5.5 per cent in 2023 as global commodity prices moderate and slower currency depreciation eases imported inflation.
Most developing countries have seen a slower job recovery in 2022 and continue to face considerable employment slack. Disproportionate losses in women’s employment during the initial phase of the pandemic have not been fully reversed, with improvements mainly arising from a recovery in informal jobs, the report said.
Recovery in the labour market has been uneven across the region. The report said that among the large economies, the unemployment rate dropped to a four-year low of 6.4 per cent in India, as the economy added jobs both in urban and rural areas in 2022.
“In India, the unemployment rate in 2022 declined to pre-pandemic levels through stepped-up urban and rural employment. But youth employment remained below pre-pandemic levels, particularly among young women, given the pandemic’s severe impacts on economic sectors where women tend to cluster,” it said.
The report calls for governments to avoid fiscal austerity which would stifle growth and disproportionately affect the most vulnerable groups, affect progress in gender equality and stymie development prospects across generations. It recommends reallocation and reprioritization of public expenditures through direct policy interventions that will create jobs and reinvigorate growth. This will require strengthening of social protection systems, ensuring continued support through targeted and temporary subsidies, cash transfers, and discounts on utility bills, which can be complemented with reductions in consumption taxes or custom duties, it said.