In its latest Regional Economic Outlook for Asia and Pacific, released on Tuesday, the International Monetary Fund (IMF) lauded India's robust growth, citing public investment as a key driver.
India's economy continues to lead as the world's fastest-growing major economy, according to the IMF's assessment.
The report underlined the potential for further reductions in headline inflation, attributed to lower energy prices across several economies in the Asia-Pacific region. However, it cautioned that food price pressures, particularly concerning rice, might impede headline disinflation in India.
Earlier this month, the IMF revised India's growth forecast for the fiscal year 2024-25 upward to 6.8%, from the previous projection of 6.5%. The forecast for the subsequent fiscal year, 2025-26, remains unchanged at 6.5%.
India and the Philippines have consistently delivered positive growth surprises, bolstered by resilient domestic demand, as noted by the IMF.
The IMF's regional growth forecast for Asia and the Pacific was also revised upward to 4.5%, up by 0.3 percentage points from six months earlier.
This upward revision primarily reflects upgrades for China, where policy stimulus is expected to provide substantial support.
Krishna Srinivasan, Director of the Asia and Pacific Department at the IMF, emphasized the importance of Asian central banks focusing on domestic price stability amidst a still subdued external environment.
He cautioned against making policy decisions overly reliant on anticipated interest rate movements by the US Federal Reserve.
Addressing inflation concerns, the IMF highlighted heterogeneity in inflation drivers across emerging markets. While core inflation is expected to remain contained, several economies, including India, may experience slower headline disinflation due to food price pressures, especially regarding rice.
Srinivasan said that "Asian countries are better equipped to manage exchange rate movements compared to previous periods, thanks to improved macro-fundamentals and institutional framework".
He advocated for advancing fiscal consolidation as a priority to mitigate the burden of higher debt levels and interest costs.
Global conflict poses additional risks to trade, as evidenced by recent developments such as the re-routing of ships to avoid the Red Sea, increasing shipment costs.
Srinivasan cautioned policymakers to tread carefully to avoid exacerbating trade frictions, given Asia's deep integration into global supply chains.
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