The International Monetary Fund (IMF) has upgraded India’s economic growth forecast for the fiscal years 2025-26 and 2026-27, citing a significant easing of global trade tensions.
India’s Brighter Economic Outlook
The IMF now projects India’s Gross Domestic Product (GDP) to grow by 6.4 percent for both 2025-26 and 2026-27. This is a slight but notable increase from its April predictions, which stood at 6.2 percent for 2025-26 and 6.3 percent for 2026-27.
This upward revision reflects a more favorable external environment than previously anticipated. The global economy, too, is expected to expand at a slightly faster pace, contributing to India’s improved outlook.
Easing Trade Tensions Fuel Optimism
A key factor behind this improved outlook is the reduction in global trade tensions. The IMF had previously lowered India’s forecasts due to “higher levels of trade tensions and global uncertainty,” specifically referring to a tariff war waged by the US.
For instance, US consumers faced an average effective tariff rate of 18.2 percent as of July 28, a drop from 28 percent on April 9. This easing of tariffs has created a more benign environment for trade.
IMF Chief Economist Pierre-Olivier Gourinchas had previously described the April actions as an “unprecedented escalation.” The recent de-escalation is a welcome change that directly impacts economic forecasts.
Broader Economic Influences
While the IMF forecasts are optimistic, India’s GDP is estimated to have grown by 6.5 percent in 2024-25, marking the lowest growth rate in four years. The Reserve Bank of India (RBI) expects 6.5 percent growth in the current fiscal year, with the Finance Ministry estimating it between 6.3-6.8 percent.
Beyond trade, global financial conditions have also eased considerably. The US dollar, for example, has weakened by about 8 percent since January. These broader positive shifts contribute to a more benign global economic backdrop.
Global Growth Gets a Boost
The positive revisions aren’t just for India. The IMF now projects global GDP to grow by 3 percent in 2025 and 3.1 percent in 2026. These figures are up from the 2.8 percent and 3 percent, respectively, predicted back in April.
Several other countries are also expected to see faster growth in both 2025 and 2026. This includes major economies like the US, Canada, Brazil, Saudi Arabia, Nigeria, and notably, China.
China’s Significant Upgrade
China received the largest growth forecast upgrade from the IMF. Its GDP is now projected to expand by 4.8 percent in 2025, a significant jump from the 4 percent predicted in April. For 2026, China’s growth forecast was also raised to 4.2 percent.
This revision reflects stronger-than-expected economic activity in the first half of 2025. It also accounts for the substantial reduction in US-China tariffs, which has positively impacted its economy.
Lingering Concerns and Risks
Despite the overall positive updates, the IMF still cautions that tariffs remain “historically high” globally. They also warn that global policy remains highly uncertain, with risks firmly tilted to the downside for the world economy.
The IMF continues to project a persistent decline in global trade as a share of output, from 57 percent in 2024 to 53 percent by 2030. This suggests that while recent tensions have eased, underlying structural issues in global trade persist.
- The IMF raised India’s GDP growth forecast to 6.4% for FY26 and FY27.
- Easing global trade tensions, especially with the US, is a primary reason for the upgrade.
- Global financial conditions have eased, and the US dollar has weakened, further supporting the positive outlook.
- China also received a significant growth forecast upgrade due to strong activity and reduced tariffs.
- Despite the improvements, the IMF warns that tariffs remain high and global trade is still expected to decline long-term.
These revised forecasts offer a more optimistic view of India’s economic trajectory in the coming years, closely tied to a more stable global trade environment.
