IMF Maintains India's GDP Growth Forecast At 7% For FY25, 6.5% For FY26

On the global growth front, the latest outlook indicates that projections remain largely unchanged from those made in July, with expectations of stable yet modest growth at 3.2% for both 2024 and 2025

Earlier this month, the Reserve Bank of India (RBI) maintained its growth projection for the current financial year at 7.2 per cent, highlighting strong momentum in consumption and investment

Source : ABPLIVE AI

The International Monetary Fund (IMF) announced on Tuesday that it is maintaining its growth forecasts for India at 7 per cent for FY25 and 6.5 per cent for FY26. The IMF noted that the pent-up demand accumulated during the pandemic has now been fully utilised as the economy begins to "reconnect" with its potential growth trajectory.

“In India, the outlook is for gross domestic product (GDP) growth to moderate from 8.2 per cent in 2023 to 7 per cent in 2024 and 6.5 per cent in 2025, 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) maintained its growth projection for the current financial year at 7.2 per cent, highlighting strong momentum in consumption and investment. 

On the global growth front, the latest outlook indicates that projections remain largely unchanged from those made in July, with expectations of stable yet modest growth at 3.2 per cent for both 2024 and 2025. However, the forecast for 2025 has been slightly revised downward by 10 basis points from the previously projected 3.3 per cent.

The IMF notes that key sectoral and regional shifts support this stable global outlook, with prices for goods remaining elevated compared to those for services—a lingering effect of the pandemic and its aftermath. Additionally, there is a global transition from goods to services consumption, with emerging markets like India and China increasing their 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 toward emerging market economies—in particular, China and India—as advanced economies lose competitiveness,” it said.

The IMF has lowered its 2024 growth projection for China by 20 basis points to 4.8 per cent while raising its forecast for the United States by the same margin 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 and generate negative global spillovers given China’s large footprint in global trade,” it noted.  

Regarding inflation, the outlook indicates that global headline inflation is projected to decline from an annual average of 6.7 per cent in 2023 to 5.8 per cent in 2024, and further to 4.3 per cent in 2025. Advanced economies are expected to reach their inflation targets sooner than emerging markets and developing economies. However, while prices for goods have stabilised, inflation for services remains elevated in many regions, highlighting the need for careful calibration of monetary policy.

“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, which would pose significant challenges to fiscal policy and financial stability,” it notes. 

The October outlook projects a headline inflation rate of 4.4 per cent for India in FY25 and 4.1 per cent for FY26. It emphasises the need for structural reforms to boost medium-term growth prospects and discusses strategies to enhance the social acceptability of these reforms, which is essential for their successful implementation.

“Engaging early with key stakeholders, such as trade unions and business associations, has also been an effective approach toward communicating the need for reforms. [Like] in India, key principles deployed in the states of Gujarat and Rajasthan, which pioneered more flexible labour laws, skill development initiatives, and job creation strategies, were later adopted for national labour law reforms,” it noted.