The International Monetary Fund (IMF) has released its updated World Economic Outlook, and it brings good news for India, with a slight upgrade to its growth forecast for the coming financial years.
India’s Growth Story Continues
The IMF now projects India’s economy to grow at 6.4% in both FY 2025-26 and FY 2026-27. This marks a positive revision from their April 2025 forecasts, with FY26 seeing a 20 basis points increase and FY27 a 10 basis points increase. Looking at calendar years, the IMF pegs India’s growth at 6.7% for 2025 and 6.4% for 2026. This upward adjustment is attributed to a “more benign external environment.” Crucially, these projections solidify India’s position as the fastest-growing major economy globally.
Modest Global Upgrade Amidst Lingering Uncertainty
Globally, the IMF has also made a modest upgrade, with global growth now expected to hit 3% in 2025 and 3.1% in 2026. While this is an improvement of 0.2 and 0.1 percentage points respectively from April’s projections, it’s worth noting that these figures remain below the pre-pandemic average of 3.7%.
This brighter global outlook is largely thanks to stronger-than-expected trade and investment in early 2025, partly driven by a rush of activity ahead of anticipated tariff hikes, improved financial conditions, and lower-than-expected US tariff rates. However, the IMF cautions that this momentum is likely to wane in the latter half of the year.
Pierre-Olivier Gourinchas, Chief Economist at the IMF, highlighted a partial reversal in US tariffs, which modestly reduced the US effective tariff rate from 24% to about 17%. Despite this, he stressed that tariffs remain historically high, and global policy is highly uncertain.
Emerging Markets and Developed Economies: A Mixed Bag
Emerging markets and developing economies are expected to see growth of 4.1% in 2025 and 4% in 2026. Notably, China’s 2025 growth forecast has been revised upward by 0.8 percentage points to 4.8%, boosted by stronger activity and reduced US-China tariffs.
For advanced economies, growth is projected at 1.5% in 2025 and 1.6% in 2026. The US economy is expected to expand by 1.9% in 2025 and 2% in 2026, benefiting from lower tariff rates and looser financial conditions. The “One Big Beautiful Bill Act” (OBBBA) is also anticipated to provide a near-term boost through tax incentives. Meanwhile, the euro area is set to accelerate to 1% growth in 2025 and 1.2% in 2026.
Inflation and Risks Ahead
Global inflation is set to continue its downward trend, with headline inflation projected to fall to 4.2% in 2025 and 3.6% in 2026. However, the IMF warns that the overall picture hides cross-country variations, with tariffs potentially impacting US consumer prices differently than other regions.
Despite the positive revisions, the IMF stresses that risks to the global outlook are still skewed to the downside. These include a potential resumption of tariff increases, ongoing geopolitical tensions (especially in the Middle East or Ukraine), and fiscal vulnerabilities in countries with high public debt. On the flip side, a breakthrough in trade negotiations could significantly boost confidence and investment.
Policy Priorities for Sustainable Growth
To navigate these challenges and sustain global growth, the IMF emphasizes the critical need for policy clarity, predictability, and structural reforms. Governments are urged to:
- Reduce trade policy uncertainty through transparent frameworks and cooperative agreements.
- Balance fiscal policy by providing near-term support while committing to credible medium-term consolidation plans, particularly in high-debt economies.
- Maintain price and financial stability, with central banks needing to skillfully manage the complexities of tariff-induced supply shocks and growth risks.
Across all economies, the IMF underscores the importance of restoring fiscal buffers, investing in upskilling and productivity-enhancing reforms, and strengthening international coordination to mitigate the spill-overs from trade and geopolitical tensions.
What are your thoughts on these updated forecasts, especially for India’s economy?