IMF Lifts India’s Growth Forecast to 7.3% as Earnings Rebound and Global Economy Stabilises

• IMF raises India’s 2025 growth forecast to 7.3%, citing stronger corporate earnings and improved momentum.

• Growth seen moderating to 6.4% in 2026–27, yet remaining well above global averages.

• India expected to outperform major economies, leading emerging Asia.

• Global growth steady at 3.3%, supported by AI investment and easing trade pressures.

• Risks persist from market valuations, trade tensions and geopolitical uncertainty.

The International Monetary Fund has upgraded its outlook for India’s economic growth in 2025, pointing to a stronger-than-anticipated recovery in corporate earnings and solid momentum entering the final quarter of the year. The Fund also noted that the global economy appears to have largely digested the initial shock from recent tariff-related disruptions.

In its latest World Economic Outlook, the IMF raised India’s growth estimate for 2025 to 7.3 per cent, an upward revision of 0.7 percentage point from its previous forecast. While this marks a clear improvement, the Fund expects growth to moderate to 6.4 per cent in both 2026 and 2027, as temporary and cyclical tailwinds begin to fade.

The revised projection follows a challenging period last year, when slower growth in corporate profits weighed on market sentiment. That slowdown contributed to equity market volatility, prompted foreign investors to pull back and increased caution among domestic investors. At the same time, global trade frictions, stretched market valuations and concerns about India’s export outlook—particularly after tariff measures introduced by the United States—added to the pressure.

Despite these headwinds, India is expected to remain one of the fastest-growing major economies over the medium term. The IMF’s projections show India expanding at 6.4 per cent in both 2026 and 2027, well above the anticipated pace of the global economy. Worldwide growth is forecast at 3.3 per cent in 2025 and 2026, easing slightly to 3.2 per cent in 2027.

In comparison with other large economies, India’s growth trajectory stands out. The United States is projected to grow at around 2.4 per cent in 2026, China at 4.5 per cent, and the euro area at just 1.3 per cent. Within emerging and developing Asia, India continues to lead, playing a significant role in driving the region’s expected 5.0 per cent growth in 2026.

The IMF said the recent pickup in corporate profitability is an encouraging signal, suggesting that the economy may be entering an early phase of recovery. Improving earnings are expected to help rebuild investor confidence, stabilise financial markets and support a return of capital inflows—what the Fund described as early “green shoots” for the Indian economy.

On the global front, the IMF highlighted the economy’s resilience despite ongoing uncertainty and trade-related disruptions led by the United States. In an accompanying blog, the Fund said global growth is now expected to hold at 3.3 per cent this year, a 0.2 percentage point upgrade from its October assessment, with much of the improvement driven by stronger outcomes in the US and China.

Looking ahead, the IMF suggested that global growth could receive an additional boost in 2026 and over the medium term, depending on how quickly artificial intelligence is adopted and how prepared economies are to integrate these technologies. The Fund noted that while manufacturing activity remains weak, investment in information technology—particularly in the United States—has surged to its highest share of economic output since 2001, providing a significant lift to business investment. Although this trend is most pronounced in the US, it is also benefiting other regions, especially Asia, through higher demand for technology exports.

According to the IMF, increased capital spending on AI has been a key factor underpinning global economic resilience. Other supportive elements include easing trade tensions, stronger-than-expected fiscal support, favourable financial conditions, the private sector’s ability to adapt to trade disruptions and improvements in policy frameworks, particularly in emerging markets.

In the near term, the Fund said progress in trade negotiations and lower tariffs could improve efficiency and reduce uncertainty. It reiterated that global growth is expected to remain steady this year, with the upward revision largely attributable to developments in the US and China.

On inflation, the IMF forecast that global headline inflation will continue to cool, falling from an estimated 4.1 per cent in 2025 to 3.8 per cent in 2026 and 3.4 per cent in 2027. In India, inflation is expected to move closer to target levels following a sharp decline in 2025, mainly due to softer food prices.

However, the Fund also highlighted several risks to the outlook. It warned that high valuations and uncertainty around earnings growth in the AI sector could undermine investor confidence. A significant correction in US equity markets—after years of rising foreign participation—could lead to substantial wealth losses abroad, dampening global consumption and affecting even lower-income and high-debt countries through weaker demand and higher borrowing costs.

The IMF further cautioned that renewed trade disputes, domestic or geopolitical tensions, alongside large fiscal deficits and elevated public debt, could prolong uncertainty. Such developments could disrupt financial markets, supply chains and commodity prices, push interest rates higher and ultimately weigh on global economic activity.