The International Monetary Fund now projects stronger economic growth for India in 2025. The organization raised its forecast to 7.3 percent, marking a significant upward revision. This positive adjustment reflects better-than-expected corporate earnings during the third quarter and strong momentum heading into the fourth quarter.
Improved Economic Outlook for India
In its latest World Economic Outlook report, the IMF increased India's 2025 growth projection by 0.7 percentage points. The organization cited several factors behind this optimistic revision. Corporate earnings showed remarkable improvement, providing a much-needed boost to the economy. This strengthening profitability trend signals early signs of economic recovery.
The IMF expects this trend to help restore investor confidence. It should also support market stability and lay the foundation for renewed capital inflows. These developments indicate the emergence of what economists often call "green shoots" in India's economic landscape.
Global Context and Future Projections
The IMF's revision comes after a period of economic stress last year. At that time, a slowdown in corporate earnings growth emerged as a key factor behind economic and stock market volatility. This triggered foreign fund outflows and increased investor caution. Persistent global trade tensions, elevated market valuations, and concerns over India's export performance following US tariff actions compounded these pressures.
Looking beyond 2025, the IMF expects India's growth to ease to 6.4 percent in 2026 and 2027. This reflects the softening of what the organization described as "cyclical and temporary factors." The global economy has largely absorbed the immediate impact of tariff-related shocks, according to IMF analysis.
Global Economic Resilience
The IMF noted that global economic growth continues to show notable resilience despite significant US-led trade disruptions and heightened uncertainty. The organization's latest projections indicate that global growth will hold steady at 3.3 percent this year. This represents an upward revision of 0.2 percentage points compared to October estimates.
Most of this global improvement comes from the United States and China. The Fund projected that global growth could rise by as much as 0.3 percentage points in 2026. Over the medium term, annual increases could range from 0.1 to 0.8 percentage points, depending on the pace of artificial intelligence adoption and improvements in AI readiness worldwide.
Technology Investment and AI Impact
The IMF highlighted several factors supporting global economic resilience. Companies worldwide stepped up capital investment in artificial intelligence during the year. This surge has been a key driver of the global economy's ability to withstand challenges.
While manufacturing activity remains subdued, IT investment as a share of US economic output has surged to the highest level since 2001. This provides a major boost to overall business investment and activity. Although this IT surge has been concentrated in the United States, it is also generating positive spillovers globally. These benefits particularly help Asia's technology exports.
Supportive Factors and Inflation Outlook
Other supportive factors cited by the IMF include easing trade tensions, higher-than-expected fiscal stimulus, and accommodative financial conditions. The private sector's agility in mitigating trade disruptions and improved policy frameworks, especially in emerging market economies, also contribute to economic stability.
In the near term, trade talks that have led to lower tariffs and improved policy predictability could enhance global efficiency gains. The IMF reiterated that global growth is expected to remain at 3.3 percent this year, 0.2 percentage point higher than earlier estimates.
On prices, the IMF projected global headline inflation to decline from an estimated 4.1 percent in 2025 to 3.8 percent in 2026. It should further decrease to 3.4 percent in 2027. India's inflation is expected to move back toward target levels after a marked decline in 2025, driven mainly by subdued food prices.
Potential Risks and Challenges
The Fund flagged several downside risks that could affect economic progress. It warned that risks around AI-sector earnings growth amid lofty valuations could sour investor sentiment. A sharp correction in US equities after decades of rising foreign ownership could result in significant wealth losses abroad.
Such developments could dampen global consumption and hurt even low-tech, high-debt and low-income countries through weaker demand and higher borrowing costs. The IMF also cautioned that escalating trade, domestic or geopolitical tensions, coupled with large fiscal deficits and high public debt, could prolong global uncertainty.
These factors could disrupt financial markets, supply chains and commodity prices. They might also put upward pressure on interest rates, weighing on economic activity worldwide. Despite these challenges, the IMF's revised forecast for India represents a vote of confidence in the country's economic trajectory.
