IMF holds India's GDP growth steady at 7% for FY25, 6.5% for FY26

The International Monetary Fund (IMF) suggests that the initial demand surge following the pandemic is now easing, with the economy returning to a more normal state.

In Short

• IMF maintains India's FY25 growth forecast at 7%
• Growth driven by strong domestic demand, recovery
• India's inflation expected to stabilise at 4.4% in FY25

The International Monetary Fund (IMF) has maintained its projection for India's economic growth at 7% for the financial year 2024-25 (FY25). This forecast aligns with the IMF's earlier estimate from July, indicating that India's economic recovery continues as expected. The IMF suggests that the initial demand surge following the pandemic is now easing, with the economy returning to a more normal state.

The 7% GDP growth forecast for FY25 represents a slight improvement of 0.2 percentage points from the IMF’s April estimate. For the following year, FY26, the IMF has set its forecast at 6.5%. This steady growth outlook is stronger than projections for many other advanced and emerging economies, emphasising India's position as a key global growth driver.

The IMF's World Economic Outlook, released on 22 October, notes that "pent-up demand," which built up during the pandemic years, is beginning to fade as the economy returns to its normal potential.

While India's growth forecast remains strong, the global economy is expected to slow down slightly. According to the IMF, global economic growth is predicted to fall to 3.2% in 2024, compared to 3.3% in 2023. The projections for India remain more robust than those for several major economies.

In India, growth is expected to decrease from 8.2% in 2023 to 7% in 2024, and then to 6.5% in 2025. This decrease is attributed to the fading of pandemic-driven demand as the economy stabilises.

The Reserve Bank of India (RBI) also recently estimated a 7.2% growth rate for FY25, citing strong domestic demand. The World Bank has made a similar forecast, projecting a 7% expansion for the Indian economy in FY25.

In contrast, China's economic outlook has been adjusted downwards to 4.8%, despite facing challenges in the real estate sector and lower consumer confidence. This revision is slightly balanced by better-than-expected export performance.

Meanwhile, the IMF has raised its growth projections for Brazil and Russia to 3% and 3.6%, respectively, for 2024. The United States is also expected to see an improved growth rate of 2.8% for the same period.

Emerging markets and developing economies are predicted to see stable growth, with an average of 4.2% for 2023 and 2024. Countries in emerging Asia, including India, China, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam, are anticipated to continue their strong performance.

One key trend highlighted by the IMF is the shift of manufacturing production to emerging economies, especially China and India, as advanced economies face rising costs and reduced competitiveness.

India's inflation is expected to settle at 4.4% for 2024-25 and decline slightly to 4.1% the following year. This suggests a stable inflationary environment, which is crucial for maintaining consumer confidence and sustaining growth.

In terms of per capita economic output, India is expected to see a 6% increase in FY25. This is higher than other significant economies, such as Brazil (2.6%), Russia (3.8%), China (4.9%), and the United States (2.3%).