IMF Maintains India’s GDP Growth at 7% for FY25, 6.5% for FY26

The International Monetary Fund (IMF) has maintained its growth projections for India, forecasting the economy to expand by 7% in FY25 and 6.5% in FY26. According to the IMF, the post-pandemic recovery, fueled by pent-up demand, has largely run its course as the economy now aligns with its potential growth trajectory. This steady outlook reflects India’s resilience amid global economic uncertainties.

India’s Growth Outlook

• The IMF retained India’s GDP growth forecasts at 7% for FY25 and 6.5% for FY26.
• Pent-up demand from the pandemic has largely been exhausted, as the economy reconnects with its potential growth.
• The RBI also maintained its FY24 growth projection at 7.2%, citing strong consumption and investment momentum.

Global Growth Forecast

• Global growth for 2024 and 2025 is expected to be 3.2%, slightly revised downward by 10 basis points (bps) from July’s projection of 3.3%.
• Sectoral shifts indicate elevated goods prices compared to services, a lingering effect of the pandemic.
• A global shift from goods to services consumption is underway, with India and China benefiting in manufacturing production.

Regional Insights

• For China, the IMF revised its 2024 growth projection downward by 20 bps to 4.8%, with risks posed by a contraction in the property sector.
• For the United States, the IMF revised its growth outlook upward by 20 bps to 2.8% for 2024.

India’s Role in Manufacturing

• Manufacturing production is increasingly shifting towards emerging markets, particularly India and China, as advanced economies lose competitiveness.

Global Inflation Outlook

• Global headline inflation is expected to decline from 6.7% in 2023 to 5.8% in 2024, and further to 4.3% in 2025.
• Advanced economies are projected to meet their inflation targets sooner than emerging markets and developing economies.
• Services inflation remains elevated globally, which may require calibrated monetary policies in response.

India’s Inflation Forecast

• The IMF projects India’s headline inflation at 4.4% for FY25 and 4.1% for FY26.

Risks and Geopolitical Tensions

• Ongoing geopolitical tensions could cause spikes in commodity prices, complicating efforts to manage inflation.
• These tensions pose risks to fiscal policy and financial stability, potentially preventing central banks from easing monetary policy.

Other’s Growth Projections Rate

• IMF – 7.0
• S & P – 6.8
• World Bank – 7.0 
• Moody’s – 7.1
• RBI – 7.2

What is Pent-up Demand?

• Pent-up demand refers to a situation where demand for a service or product is unusually strong. 
• Economists generally use the term to describe the general public’s return to consumerism following a period of decreased spending.