UN Revises India's 2024 Economic Growth Forecast to 6.9%, What's Driving the Growth?
UN Revises India's 2024 Economic Growth Forecast to 6.9%, What's Driving the Growth?

The United Nations has raised India's economic growth prediction for 2024, forecasting a 6.9% expansion driven by robust public investment and strong private consumption.

The "World Economic Situation and Prospects" report released on Thursday states, "India's economy is expected to grow by 6.9% in 2024 and 6.6% in 2025, primarily due to solid public investment and resilient private consumption. Despite weak external demand impacting merchandise exports, exports of pharmaceuticals and chemicals are expected to perform well."

This new forecast marks an upgrade from the 6.2% growth projected by the UN in January. The January report highlighted strong domestic demand and significant growth in manufacturing and services sectors as key factors for India's expected 6.2% growth in 2024. The 6.6% growth projection for 2025 remains unchanged.

Inflation in India is projected to decrease from 5.6% in 2023 to 4.5% in 2024, remaining within the central bank's target range of 2-6%. Inflation in other South Asian countries also declined in 2023 and is expected to decrease further in 2024, ranging from 2.2% in the Maldives to 33.6% in Iran. However, food prices stayed high in the first quarter of 2024, especially in Bangladesh and India.

India's labor market has improved with higher growth and increased labor force participation. The government aims to reduce the fiscal deficit while boosting capital investment.

South Asia's economic outlook is strong, bolstered by India's performance and slight recoveries in Pakistan and Sri Lanka. Regional GDP is expected to grow by 5.8% in 2024 and 5.7% in 2025, down from 6.2% in 2023. Tight financial conditions and fiscal and external imbalances will continue to affect growth. Additionally, potential increases in energy prices due to geopolitical tensions and disruptions in the Red Sea pose risks to the regional outlook.

Globally, the economy is forecasted to grow by 2.7% in 2024 and 2.8% in 2025, reflecting an improved outlook for the United States and several large emerging economies, including Brazil, India, and Russia.

The report highlights that large developing economies like Indonesia, India, and Mexico benefit from strong domestic and external demand. In contrast, many African and Latin American economies face challenges such as high inflation, elevated borrowing costs, and political instability. Conflicts in Gaza and the Red Sea add further uncertainty to the Middle East's outlook.

Global trade is anticipated to recover in 2024, with an early boost from destocking inventory accumulated during supply-chain disruptions in 2021-22. China's foreign trade grew faster than expected in early 2024, driven by exports to emerging markets, particularly Brazil, India, and Russia. However, geopolitical tensions and high freight costs continue to challenge global trade.

Overall, global economic prospects have improved since January, with major economies avoiding a severe downturn, reducing inflation without increasing unemployment. However, the outlook remains cautiously optimistic due to persistent challenges like high interest rates, debt sustainability issues, geopolitical tensions, and climate risks, which threaten long-term development, especially for least developed countries and small island states.

China's growth forecast for 2024 has been slightly revised to 4.8% from the 4.7% projected in January, down from 5.2% in 2023. While policy support is expected to boost investments in infrastructure and strategic sectors, the property sector remains a significant risk for the Chinese economy.

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