The International Monetary Fund (IMF) has upgraded India’s economic growth forecast for 2025 by 70 basis points to 7.3 per cent, driven by stronger-than-expected corporate earnings in the third quarter and firm momentum extending into the fourth quarter. The revised estimate is broadly aligned with the Reserve Bank of India’s projection and only marginally below the government’s assessment.
“In India, growth is revised upward by 0.7 percentage point to 7.3 per cent for 2025, showing the better-than expected outturn in the third quarter of the year and strong momentum in the fourth quarter,” the IMF said in its latest update to the World Economic Outlook.
The IMF expects India’s growth to ease to 6.4 per cent in 2026 and 2027 as “cyclical and temporary factors” fade. Inflation is projected to return close to target levels after a sharp decline in 2025, largely due to subdued food prices.
The improved outlook marks a reversal from last year, when slowing earnings growth weighed on economic sentiment and equity markets, triggering foreign portfolio outflows and investor caution. These pressures were compounded by global trade frictions, elevated market valuations, and concerns over export prospects following US tariff measures.
The recent recovery in profitability is now emerging as a key positive, with stronger earnings expected to stabilise markets, rebuild investor confidence, and support fresh capital inflows, signalling early signs of economic recovery.
Last month, the RBI raised its own growth forecast to 7.3 per cent, citing supportive domestic conditions such as favourable agricultural prospects, the continued impact of GST rationalisation, benign inflation, healthy corporate and financial-sector balance sheets, and accommodative monetary and financial conditions. The central bank added that ongoing reforms would further underpin growth.
On the external front, services exports are expected to remain resilient, while merchandise exports could face headwinds amid lingering global uncertainties. However, progress on trade and investment negotiations could provide upside potential, leaving risks broadly balanced.
Separately, the Asian Development Bank upgraded India’s FY26 growth projection by 70 basis points to 7.2 per cent, attributing the revision primarily to robust domestic consumption supported by recent tax cuts.
Global Economy Shows Resilience
At the global level, the IMF said economic growth has remained resilient despite trade disruptions and heightened uncertainty. Global growth is now projected at 3.3 per cent in 2025, reflecting a 0.2 percentage point upward revision from October estimates, largely driven by stronger performance in the United States and China. Growth is expected to moderate slightly to 3.3 per cent in 2026 and 3.2 per cent in 2027.
“Global economic growth continues to show notable resilience despite significant US-led trade disruptions and heightened uncertainty. Our latest projections indicate that global growth will hold steady at 3.3 per cent this year,” the IMF said.
The Fund noted that trade-related headwinds are being offset by a surge in technology-led investment, particularly in artificial intelligence (AI), alongside fiscal and monetary support, accommodative financial conditions, and the adaptability of the private sector. IT investment in the US has climbed to its highest share of economic output since 2001, boosting business activity and generating positive spillovers for Asia’s technology exports.
Risks And inflation Outlook
Global headline inflation is projected to ease from an estimated 4.1 per cent in 2025 to 3.8 per cent in 2026 and 3.4 per cent in 2027. India’s inflation is also expected to stabilise near target levels after the sharp decline anticipated in 2025.
However, the IMF cautioned that elevated valuations in the AI sector could pose risks to earnings growth and investor sentiment. A sharp correction in US equity markets could trigger global wealth losses, dampen consumption, and raise borrowing costs, particularly for high-debt and low-income economies. Escalating trade, domestic, or geopolitical tensions, combined with large fiscal deficits and high public debt, could further disrupt financial markets, supply chains, and commodity prices.
In a blog post, IMF officials Tobias Adrian and Pierre-Olivier Gourinchas warned that while global growth has remained resilient, this strength masks vulnerabilities linked to the concentration of investment in the technology sector. “The challenge for policymakers and investors alike is to balance optimism with prudence, ensuring that today’s tech surge translates into sustainable, inclusive growth rather than another boom-bust cycle,” the blog said. |
