IMF raises India GDP forecast by 20 bps to 7% for FY25

“The forecast for growth in emerging markets and developing economies has been revised upward; this increase is powered by stronger activity in Asia, particularly China and India. The forecast for growth in India has also been revised upward to 7 per cent this year, reflecting carryover from upward revisions to growth in 2023 and improved prospects for private consumption, particularly in rural areas,” the IMF noted.

India’s economy is now forecast to expand by 7 per cent, up from the 6.8 per cent the IMF projected in April. Overall, global growth is projected to align with the April 2024 World Economic Outlook forecast, at 3.2 per cent in 2024 and 3.3 per cent in 2025.

Asia’s emerging market economies remain the main engine for the global economy, with growth in India and China being revised upward and accounting for almost half of global growth, Pierre-Olivier Gourinchas, Economic Counsellor and Director of Research at the IMF, said in a blog. He pointed out that prospects for the next five years remain weak, largely due to waning momentum in emerging Asia. “By 2029, growth in China is projected to moderate to 3.3 per cent, well below its current pace,” he added.

Growth in major advanced economies is becoming more aligned as output gaps close. “The United States shows increasing signs of cooling, especially in the labour market, after a strong 2023. The euro area, meanwhile, is poised to pick up after a nearly flat performance last year,” he stated.

Varied momentum in activity at the turn of the year has somewhat narrowed the output divergence across economies as cyclical factors wane and activity becomes better aligned with its potential.

Services price inflation is hindering progress on disinflation, complicating monetary policy normalisation, the IMF said. Upside risks to inflation have increased, raising the prospect of higher-for-longer interest rates amid escalating trade tensions and increased policy uncertainty.

To manage these risks and preserve growth, the policy mix should be sequenced carefully to achieve price stability and replenish diminished buffers, the report advised. “As in April, we project global inflation will slow to 5.9 per cent this year from 6.7 per cent last year, broadly on track for a soft landing. However, in some advanced economies, especially the United States, progress on disinflation has slowed, and risks are to the upside,” Gourinchas said.