The International Monetary Fund (IMF) on Friday maintained its growth forecast for India at 6.5 per cent for FY26 and FY27, stating that this is “in line with potential.” The IMF noted in its update to the World Economic Outlook (WEO) that India’s growth had slowed more than anticipated, driven by a sharper-than-expected decline in industrial activity, which contributed to the surprise 5.4 per cent growth in the September quarter.
This projection is lower than that of the World Bank, which on Thursday upheld its 6.7 per cent growth forecast for India in FY26 and FY27, stressing that India would continue to be the fastest-growing major economy over the next two years.
“India is projected to maintain the fastest growth rate among the world’s largest economies, at 6.7 per cent in both FY26 and FY27. The services sector is expected to enjoy sustained expansion, and manufacturing activity is anticipated to strengthen, supported by government initiatives to enhance logistics infrastructure and improve the business environment through tax reforms,” the World Bank said in its Global Economic Prospects report.
The IMF has projected global growth to remain steady at 3.3 per cent in both 2025 and 2026, aligning with potential growth that has significantly slowed since the pandemic.
“The forecast for 2025 is broadly unchanged from that in the October 2024 WEO, primarily on account of an upward revision in the United States offsetting downward revisions in other major economies,” the IMF said.
China’s growth projection for the calendar year 2025 has been revised upward by 0.1 percentage points, now forecasted at 4.6 per cent. “This revision reflects carryover from 2024 and the fiscal package announced in November, which largely offsets the negative effect on investment from heightened trade policy uncertainty and the property market,” the IMF report said.
The IMF warned that escalating protectionist measures, such as new tariffs, could worsen trade tensions, reduce investment, disrupt market efficiency, distort trade flows, and disrupt supply chains.
“Growth could suffer in both the near and medium term, but at varying degrees across economies,” it stated. The report further highlighted that renewed inflationary pressures could push central banks to raise policy rates, exacerbating monetary policy divergence.
In addition to economic policy risks, the IMF cautioned that rising geopolitical tensions could increase commodity prices. “The conflicts in the Middle East and Ukraine could worsen, directly affecting trade routes as well as food and energy prices. Commodity-importing countries may be particularly affected, with the stagflationary impact of higher commodity prices compounded by an appreciating dollar,” it noted.
On the positive side, the IMF noted that global economic activity could benefit if incoming governments renegotiate existing trade agreements and establish new ones. “Momentum on other policy fronts could also lift growth. Many countries may embrace structural reforms to prevent divergence from their better-performing peers from becoming entrenched. Efforts to increase labour supply, reduce misallocation, enhance competition, and support innovation could raise medium-term growth,” the report stated.
The IMF highlighted that policies should focus on mitigating short-term risks while rebuilding economic buffers, all while working towards enhancing medium-term growth prospects in an environment of heightened uncertainty. “In economies where inflationary pressures are proving persistent and the risk of upside surprises is rising, a restrictive stance will need to be maintained until there is clearer evidence that underlying inflation is sustainably returning to target,” it added.
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