• Also revises next fiscal year’s projection downward to 3.5pc
• Lifts global growth forecast to 3.1pc citing unexpected ‘resilience’
• Indian economy expected to grow at a faster 6.5pc
ISLAMABAD: Despite an improved global outlook, the International Monetary Fund (IMF) on Tuesday lowered Pakistan’s economic growth forecast to two per cent for the current fiscal year, down 0.5 percentage points from its October estimate of 2.5pc.
In its latest World Economic Outlook (WEO) report released on Tuesday, the Washington-based global lender also slightly revised downward (by 0.1pc) the next fiscal year’s growth forecast to 3.5pc.
The revised growth estimates are based on the Fund’s recent detailed quarterly review of Pakistan’s macroeconomic position as part of the ongoing $3bn Standby Arrangement (SBA), which is set to expire in March.
The IMF’s growth forecast is significantly lower than the government’s 3.5pc GDP growth target for the current year but generally in line with the State Bank of Pakistan’s expectation of 2pc to 3pc announced a day earlier as part of the monetary policy statement.
In the WEO report, the IMF also raised the global growth rate for 2024 to 3.1pc, 0.2pc higher than its October forecast of 2.9pc, citing greater than expected resilience in both the United States and China, besides many other large emerging market and developing economies.
“Global growth is projected at 3.1 per cent in 2024 and 3.2 per cent in 2025, with the 2024 forecast 0.2 percentage point higher than that in the October 2023 WEO on account of greater-than-expected resilience in the United States and several large emerging market and developing economies, as well as fiscal support in China,” it said.
But despite a slightly better outlook, the IMF noted the growth forecast for both years (2024 and 2025) was below the historical (2000-19) average of 3.8pc, with elevated central bank policy rates to fight inflation, a withdrawal of fiscal support amid high debt weighing on economic activity, and low underlying productivity growth.
Inflation is falling faster than expected in most regions in the midst of unwinding supply-side issues and restrictive monetary policy. “Global headline inflation is expected to fall to 5.8pc in 2024 and to 4.4pc in 2025, with the 2025 forecast revised down,” it said.
The global lender also noted that with disinflation and steady growth, the likelihood of a hard landing had receded, and risks to global growth were broadly balanced. On the upside, faster disinflation could lead to further easing of financial conditions.
Looser fiscal policy than necessary and than assumed in the projections could imply temporarily higher growth but at the risk of a more costly adjustment later on. Stronger structural reform momentum could bolster productivity with positive cross-border spillovers.
On the downside, new commodity price spikes from geopolitical shocks — including continued attacks in the Red Sea — and supply disruptions or more persistent underlying inflation could prolong tight monetary conditions. Deepening property sector woes in China or, elsewhere, a disruptive turn to tax hikes and spending cuts could also cause growth disappointments.
As such, the WEO Update raised the US growth rate by 0.6pc to 2.1pc for 2024 and downgraded by 0.1pc for 2025 to 1.7pc. On the other hand, it improved its growth forecast for China by 0.4 percentage points to 4.6pc for 2024 and kept unchanged at 4.1pc for 2025. India is anticipated to grow 0.2pc faster to 6.5pc than the previous forecast in both the 2024 and 2025 fiscal years.
Overall, the advanced economies are expected to see growth decline slightly from 1.6pc in 2023 to 1.5pc in 2024 before rising to 1.8pc in 2025, with a recovery in the Euro area from low growth in 2023 and a moderation of growth in the United States. Emerging markets and developing economies are expected to experience stable growth through 2024 and 2025, with regional differences.
World trade growth is projected at 3.3pc in 2024 and 3.6pc in 2025, below its historical average growth rate of 4.9pc. Rising trade distortions and geo-economic fragmentation are expected to continue to weigh on the level of global trade.
The IMF said its forecasts were based on assumptions that fuel and non-fuel commodity prices will decline in 2024 and 2025 and that interest rates will decline in major economies. Annual average oil prices are projected to fall by about 2.3pc in 2024, whereas non-fuel commodity prices are expected to fall by 0.9pc.
Also, the projections are for policy rates to remain at current levels for the US Federal Reserve, the European Central Bank, and the Bank of England until the second half of 2024, before gradually declining as inflation moves closer to targets. The Bank of Japan is projected to maintain an overall accommodative stance.
Published in Dawn, January 31st, 2024
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