IMF retains India's GDP growth forecast at 7% for FY25, 6.5% for FY26

The International Monetary Fund (IMF) on Tuesday kept its growth forecasts for India unchanged at 7 per cent and 6.5 per cent for FY25 and FY26, respectively.

It held that pent up demand accumulated during the pandemic has been exhausted as the economy “reconnects” with its potential growth.

“In India, the outlook is for GDP growth to moderate from 8.2 per cent in FY24 to 7 per cent in FY25 and 6.5 per cent in FY26. This is because pent-up demand accumulated during the pandemic has been exhausted, as the economy reconnects with its potential,” it said in its latest World Economic Outlook report. 

 

Earlier this month, the Reserve Bank of India (RBI), in its latest monetary policy committee (MPC) review, also kept its growth projection for the current financial year unchanged at 7.2 per cent. It cited robust consumption and investment momentum.

 On the global growth front, the latest outlook notes that the growth projection is virtually unchanged from those made earlier in July. It is expected to remain stable yet underwhelming at 3.2 per cent in 2024 and 2025. However, the growth forecast for 2025 has been marginally revised downwards by 10 basis points (bps) from 3.3 per cent projected in July.

IMF notes that important sectoral and regional shifts underpin the stable global outlook with goods prices remaining elevated compared with those for services. This is a lingering effect of the pandemic and its aftermath.

Also, a global shift from goods to services consumption is underway, with emerging markets like India and China gaining in manufacturing production. 

“This rebalancing is tending to boost activity in the services sector in advanced and emerging markets but is dampening manufacturing. Manufacturing production is also increasingly shifting towards emerging market economies — in particular, China and India —as advanced economies lose competitiveness,” it said. 

For China, the IMF revised downwards its 2024 growth projection by 20 bps to 4.8 per cent, while for the United States, it revised upwards by 20 bps to 2.8 per cent. 

“Deeper- or longer-than-expected contraction in China’s property sector, especially if it leads to financial instability, could weaken consumer sentiment. It could generate negative global spillovers, given China’s large footprint in global trade,” it noted. 

On the inflation front, the outlook noted that global headline inflation is expected to fall from an annual average of 6.7 per cent in 2023 to 5.8 per cent in 2024 and 4.3 per cent in 2025, with advanced economies returning to their inflation targets sooner than emerging markets and developing economies.

However, the outlook notes that although goods prices have stabilised, services price inflation remains elevated in many regions, pointing to the calibration of monetary policy accordingly. 

“Further disruptions to the disinflation process, potentially triggered by new spikes in commodity prices amid persistent geopolitical tensions, could prevent central banks from easing monetary policy. This would pose significant challenges to fiscal policy and financial stability,” it added. 

For India, the October outlook projects a headline inflation figure of 4.4 per cent for FY25 and 4.1 per cent for FY26.