India is set to maintain its position as the fastest-growing major economy globally, according to the International Monetary Fund’s (IMF) latest World Economic Outlook (WEO). The report, released on Tuesday, indicates an increase in India’s projected GDP growth for the fiscal year 2025-26 to 6.6%, a rise of 20 basis points compared to the July projections. However, the forecast for the following year, 2026-27, has seen a slight reduction of 20 basis points from the July estimate, now standing at 6.2%. This latest projection from the IMF is marginally lower than the 6.8% growth anticipated by the Reserve Bank of India (RBI) earlier this month.
The WEO report attributes the positive growth outlook partly to the carryover from a strong first quarter, which more than compensates for the increased US effective tariff rate on imports from India implemented since July. The report also notes that India has experienced surprisingly low inflation.
Globally, the IMF projects the US economy to grow by 2%, China by 4.8%, and the Euro Area by 1.2% in 2025. Emerging Market and Developing Economies are expected to see a 4.2% growth rate. Notably, all these economies, with the exception of China, have experienced an upgrade in their growth prospects since the July projections. China’s growth forecast remains unchanged.
Despite the generally positive outlook for India and a slight upward revision to the global growth forecast from 3% to 3.2%, the WEO report sounds a note of caution regarding the overall state of the global economy. The IMF’s chief economist, Pierre-Olivier Gourinchas, highlighted that concluding the impact of tariff surges on global growth would be premature. Factors like potential price increases for consumers due to passed-on tariffs, trade rerouting leading to efficiency losses, and broader economic forces are complicating the assessment. Additionally, the report points to risks such as an AI boom, structural challenges within the Chinese economy, fiscal crises, and threats to institutional credibility as potential headwinds for the global economy.
To foster future growth, the IMF emphasizes the critical need to resolve policy uncertainty and establish clearer, more stable bilateral and multilateral trade agreements. These measures could boost global output by 0.4% in the short term, with a return to pre-2025 tariff levels potentially adding another 0.3% upside. While acknowledging the AI boom as a significant development, comparable to the dot-com bubble in its initial exuberance, the IMF also recognizes its long-term potential to enhance productivity.
The report concludes with a call for restoring confidence through credible, predictable, and sustainable policy actions. Policymakers are urged to develop clear, transparent, and rules-based trade policy roadmaps to mitigate uncertainty, encourage investment, and ultimately harness the benefits of increased trade for productivity and growth.