IMF World Economic Outlook 2025–26

GS3 – Indian Economy

Context:

The International Monetary Fund (IMF) has released its latest World Economic Outlook, projecting global economic stability despite persistent risks. India remains a standout performer, with its growth forecast revised upward.

Global Economic Trends
  • Growth Forecasts:
    • Global GDP growth is now projected at 3.0% in 2025 and 3.1% in 2026, both slightly higher than earlier estimates.
    • The resilience is driven by short-term liquidity infusions and front-loaded trade, rather than lasting structural reforms.
  • Inflation and Fiscal Challenges:
    • Global inflation is expected to moderate to 4.2% by 2025, reducing pressure on central banks.
    • However, rising public debt is straining fiscal policy options across both developed and emerging economies.
  • Monetary and External Risks:
    • Higher interest rates have elevated sovereign borrowing costs and increased credit default risks.
    • A weakening dollar has improved global liquidity but simultaneously pushed up import bills and inflation in many countries.
  • Trade Dynamics:
    • Trade growth may decelerate in 2026 as the current burst in global activity stabilises.
    • The trend of “slowbalisation” is intensifying, with the global trade-to-GDP ratio projected to drop to 53% by 2030.
    • Risks like tariff wars, geopolitical conflicts, and supply chain fragmentation continue to pose serious threats to recovery.
India’s Growth Outlook
  • Revised Forecast:
    • India’s GDP growth is now projected at 6.4% for both 2025 and 2026, marking the highest among major economies.
  • Growth Drivers:
    • The revision is attributed to strong external demand, tariff relief, and improved global liquidity conditions.
  • Structural Strengths:
    • Low inflation, sustained domestic demand, and continued economic reforms have contributed to robust performance.
    • India is rapidly converging with advanced economies in terms of GDP scale and output, indicating a shift in the global economic centre of gravity.
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