E-Paper
India will continue to be fastest growing major economy: IMF
India is projected to remain the fastest-growing major economy, with growth rates of 6.4% for 2026-27 and 2027-28, according to the IMF.
India will continue to be the world’s fastest growing major economy with projected growth rates of 6.4% each in 2026-27 and 2027-28, the International Monetary Fund said in its latest World Economic Outlook (WEO) update which comes weeks before the presentation of the next Union Budget. IMF has also made an upward revision to its 2025-26 growth forecast for India to 7.3% in keeping with the first advance estimates issued by the National Statistics Office (NSO) earlier this year. NSO numbers have projected a 7.4% GDP growth in 2025-26.
“In India, growth is revised upward by 0.7 percentage point to 7.3 percent for 2025 (2025-26), reflecting the better-than-expected outturn in the third quarter of the year and strong momentum in the fourth quarter. Growth is projected to moderate to 6.4 percent in 2026 and 2027 as cyclical and temporary factors wane”, IMF’s January update to its 2025 October WEO report said. “Inflation in India is expected to go back to near target levels after a marked decline in 2025 driven by subdued food prices”, the report said, in line with institutional forecasts such as RBI’s.
IMF’s latest projections have no real surprises as far as growth for the global economies and other major economies is concerned as well. Global GDP growth is expected at 3.3% in 2025, same as 2024 and also in 2026.
Among other major economies, the US and China are expected to grow at 2.1% and 5% in 2025 and 2.4% and 4.5% in 2026, respectively.
Unchanged growth forecasts, however, do not mean that the world economy is stable, the report cautions. “This steady performance on the surface results from the balancing of divergent forces. Headwinds from shifting trade policies are offset by tailwinds from surging investment related to technology, including artificial intelligence (AI), more so in North America and Asia than in other regions, as well as fiscal and monetary support, broadly accommodative financial conditions, and adaptability of the private sector…Risks to the outlook remain tilted to the downside”, the report said, highlighting a host of factors which could inflict a shock to the system.
It also warned of an AI bubble.
“Should expectations about AI-driven productivity gains turn out to be overly optimistic and outcomes disappoint, a sharp drop in real investment in the high-tech sector as well as in spending on AI adoption in other sectors and a more prolonged correction in stock market valuations—which have increasingly been lifted by only a few technology firms—could ensue. The rapid obsolescence of unused or misaligned assets, costly reallocation of capital and labour accompanied by a decline in business dynamism, and negative wealth effects would weigh on private consumption and investment. Spillovers would spread, directly through trade flows, to export-oriented economies specializing in technology products. These would radiate to the rest of the world through the tightening of global financial conditions. The impact on growth is highly uncertain and depends on how financial conditions react”, the report said, highlighting the systemic risk from the ongoing rally in all things AI despite it holding a promise of a rapid growth in productivity.
To be sure, the report also flagged risks from trade uncertainty and geopolitical developments, while underlining the need for globally coordinated policies which can boost medium term growth.
“Weaving in growth-enhancing measures together with efforts to fortify the EU single market, to chart a credible fiscal consolidation plan to put US public debt on a decisively downward path, and to advance China’s reforms to strengthen the social protection system and scale back unwarranted industrial policy support would help diversify the sources of global growth”, the report said.
