According to the Organization for Economic Cooperation and Development (OECD), India’s economic growth is expected to surpass that of China’s this year and the next. The OECD’s global economic outlook report predicts that India, China, and Indonesia will lead in gross domestic product (GDP) projections for 2023 and 2024. The organization expects global growth of 2.7% in 2023, which would be the second-lowest annual rate since the global financial crisis, except for the pandemic year 2020.
Factors Contributing to India’s Growth
The report states that India’s full-year growth momentum in 2022 is expected to continue into this year due to higher-than-expected agriculture output and strong government spending. The OECD predicts India’s growth to be 6% in 2023, with the central bank turning to mild interest rate cuts beginning in mid-2024. The organization also expects looser monetary policy in the second half of next year to help household spending momentum return.
Challenges and Measures to Combat Inflation
The OECD’s report advises governments to take three measures to combat rising inflation and address concerns for the global economy: maintain restrictive monetary policy, phase out and target fiscal support, and prioritize pro-growth spending and supply-boosting structural reforms. The organization warns that global economic recovery remains fragile as central banks continue to tighten monetary policy, which could lead to stress in financial markets. The report also points to elevated debt levels in advanced economies following the COVID-19 pandemic and Russia’s war in Ukraine.
The OECD suggests careful choices to preserve scarce budget resources for future policy priorities and to ensure debt sustainability. The burden of debt servicing is increasing, and spending pressures related to aging and the climate transition are building. The report highlights that almost all countries have higher budget deficits and debt levels than before the pandemic.
Outlook for Asia
The OECD predicts that Asia will remain a bright spot as regional inflation is expected to remain “relatively mild.” It added that China’s reopening is expected to boost demand for the wider region. The organization forecasts Japan’s GDP growth rate to be 1.3%, boosted by fiscal policy support, as underlying inflation continues to move up toward 2%.
Nomura economists wrote in a Monday note that global financial conditions suggest it’s “Asia’s time to shine.” They believe that Asia fits the bill for healthy economic fundamentals and will likely spur investors to look for new opportunities and place a premium on subdued global growth and the near-end of policy rate hikes.
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