India's economic growth is projected to be around 6.5% for the fiscal year 2024/25, according to the government announcement on Thursday. This forecast aligns with the lower end of its previous projection range of 6.5%-7%. The finance ministry pointed to global uncertainties as potential risks to domestic economic growth.
The finance ministry’s monthly economic report for November highlighted favorable growth activity anticipated for the period from October to December. This positivity is attributed to resilient rural demand, coupled with rising urban demand during the early months of this quarter. Nevertheless, the economic growth pace for India was slower than some had hoped during the July to September window, which was chiefly impacted by weaker expansions seen across the manufacturing and consumption sectors.
Yet, India stands firm, maintaining its projection of 6.5%-7% growth, which is considered impressive even amid global economic challenges. "The combination of monetary policy stance and macroprudential measures by the central bank may have contributed to the demand slowdown," reported Investing.com, capturing the nuances of current economic strategies.
Meanwhile, global economic conditions paint a picture of concern. Since the second half of this year, major economies have experienced varying degrees of inflationary pressure, geopolitical uncertainties, and deceleration of economic growth. Central banks across the world have adjusted their monetary policies as they react to this backdrop.
Starting with the United States, the Federal Reserve (Fed) acted by lowering the federal funds rate by 25 basis points (bps) to target range of 4.25%-4.50% during its December meeting, confirming market expectations. This adjustment also revealed their intent on adopting a careful approach moving forward. The Fed indicated slowness concerning future rate reductions and expanded their economic growth projections, anticipating GDP growth of 2.5% for 2024, up from earlier estimates of 2.0%.
While positive growth has surfaced from U.S. forecasts, the Fed also cautioned the public with heightened core inflation expectations over the next few years: increasing to around 2.8% for 2024. Their dot plot suggests narrower rate cuts may emerge, showing adjustments to the overnight reverse repo rate alongside monetary stability during uncertain times amid international trade policies set by former President Trump.
Over in China, the People's Bank of China (PBOC) has kept its 7-day reverse repo rate stable at 1.5%, resisting the calls for more aggressive moves even after implementing fiscal policies aimed at enhancing national economic activity this past year. Although they aimed to mitigate economic concerns with policies introduced earlier, subsequent signals showed limits on consumer and business confidence improvement, leading to predictions of more aggressive fiscal tactics moving forward, including increasing the fiscal deficit ratio by 1 percentage point.
Japan’s economy reflects moderate growth, with Bank of Japan (BoJ) holding its benchmark interest rate unchanged at 0.25% as uncertainties persist on wage and inflation growth. There are internal divisions within the BoJ concerning the outlook, particularly one member advocating for rate hikes, which might signify varying interpretations of inflation risks as highlighted by BoJ Governor Kazuo Ueda: "The central bank would wait for more data on domestic wage growth before considering a rate hike."
Across the ocean, the European Central Bank (ECB) noted growth factors like the Summer Olympics and consumer recovery, but tempered enthusiasm with adjustments to GDP forecasts for 2024-2026. They revised their main refinancing rate down to 3.15% and pointed out challenges from manufacturing weaknesses and slowed services growth impacting expected investments.
Similarly, Canada’s economic outlook shifted as the Bank of Canada (BoC) reduced its policy rate by 50 bps, highlighting cuts made throughout the year leading to one of the most generous easing cycles. The anticipated impact of tariffs under Trump's administration alongside sluggish business investment dampens confidence for 2024.
On the other hand, Australia’s Reserve Bank (RBA) confirmed stability around its cash target rate, maintaining attentive observation of mixed economic trends and anticipated upcoming rate cuts within the market.
Globally, the adjustments made by these central banks reflect cautiousness toward economic outlooks as collective concerns over inflation persist. The Fed, reflecting on economic metrics, suggests gradual policy adjustments amid other nations also illustrating their cooperation and challenges. The pathways for future economic stability seem contingent on adaptive monetary policies and the resilience of domestic markets to overall global economic currents.
