India’s GDP growth: IMF retains growth forecast of 7% for FY25

The International Monetary Fund (IMF) has reaffirmed its growth forecast for India at 7% for the fiscal year 2025, in line with its previous prediction made in July. The IMF pointed out that the decrease in "pent-up demand" due to the pandemic is subsiding as the economy regains its potential, resulting in a 0.2 percentage point increase from the April forecast. 

The projected growth rate for the fiscal year 2026 is set at 6.5%, surpassing the growth projections for both advanced and emerging economies. Global economic growth is anticipated to decelerate to 3.2% in 2024, down from 3.3% in the previous year.

The World Economic Outlook stated: “In India, the outlook is for GDP growth to moderate from 8.2 percent in 2023 to 7 percent in 2024 and 6.5 percent in 2025, because pent-up demand accumulated during the pandemic has been exhausted, as the economy reconnects with its potential.” 

In its recent monetary policy committee (MPC) review, the Reserve Bank of India (RBI) maintained its growth projection for the current fiscal year at 7.2 per cent, attributing this to strong consumption and investment trends. The global growth forecast remains stable at 3.2 per cent for 2024 and 2025, with a slight downward adjustment of 10 basis points to 3.2 per cent for 2025 compared to the previous projection of 3.3 per cent in July.

The IMF report has observed a modest decrease in China's growth forecast to 4.8%, despite challenges in the real estate sector and low consumer confidence. This adjustment is credited to the "better-than-expected net exports."

Conversely, economic forecasts for Brazil and Russia in 2024 have been revised to 3% and 3.6% respectively. The United States' economic output is also projected to increase to 2.8%.

“The growth outlook is very stable in emerging markets and developing economies, around 4.2 percent this year and next, with continued robust performance from emerging Asia,” according to an IMF blog.

Emerging Asia includes China, India, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.

Inflation forecast

The forecast anticipates a decline in global headline inflation rates, dropping from an annual average of 6.7% in 2023 to 5.8% in 2024 and 4.3% in 2025. Advanced economies are expected to reach their inflation targets sooner than emerging market and developing economies. Despite stable goods prices, high services price inflation persists in various regions, underscoring the need for monetary policy adjustments.

“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 for India predicts a headline inflation rate of 4.4% for the fiscal year 2025 and 4.1% for the fiscal year 2026. Emphasizing the importance of structural reforms in boosting medium-term growth prospects, the outlook also addresses strategies to improve the social acceptance of these reforms, which is essential for their successful implementation.