The International Monetary Fund has raised India’s economic growth projection for 2025 to 7.3 per cent, pointing to stronger-than-expected corporate earnings
in the third quarter and solid momentum heading into the fourth. The IMF also noted that the global economy appears to have absorbed the immediate impact of tariff-related disruptions. In its latest World Economic Outlook, the IMF increased India’s growth estimate by 0.7 per cent point. It added that expansion is likely to moderate to about 6.4 per cent in 2026 and 2027 as temporary and cyclical tailwinds begin to fade. Last year, slowing profit growth across companies became a key source of stress for the economy and stock markets. Foreign investors pulled out funds while valuations remained stretched, global trade tensions stayed elevated and India’s export outlook weakened following US tariff actions. That picture is now improving. The rebound in corporate earnings is offering early signs of recovery, helping rebuild investor confidence and stabilise markets. Rising profitability is also expected to attract fresh capital flows, signalling what economists often describe as the first 'green shoots' of a broader economic revival. On the global front, the IMF said growth remains surprisingly resilient despite trade frictions led by the United States. It now expects the world economy to expand by 3.3 per cent this year, a 0.2 percentage point upgrade from its October forecast, largely driven by better prospects in the US and China. Looking ahead, global growth could improve by up to 0.3 per cent points in 2026 and by 0.1 to 0.8 per cent points a year over the medium term, depending on how quickly countries adopt artificial intelligence and strengthen their AI readiness. Although manufacturing activity continues to remain weak, IT investment in the United States has climbed to its highest share of economic output since 2001. This has lifted overall business spending and activity. While the surge is concentrated in the US, the IMF said it is also benefiting other regions, particularly Asia’s technology exporters. Companies worldwide have sharply increased spending on AI development and the IMF sees this investment wave as one of the main reasons the global economy has managed to stay resilient. The fund added that easing trade tensions, stronger-than-expected fiscal support, supportive financial conditions, and the private sector’s ability to adapt to trade disruptions have all helped cushion growth, especially in emerging economies. Ongoing trade negotiations and lower tariffs in the near term could further improve efficiency and predictability in global markets. Inflation trends are also expected to improve. The IMF projects global headline inflation to fall from about 4.1 per cent in 2025 to 3.8 per cent in 2026 and further to 3.4 per cent in 2027. In India, inflation is likely to return closer to target levels after a sharp drop in 2025, helped by softer food prices. However, the IMF flagged several risks. Rich valuations in AI-related stocks could hurt investor sentiment if earnings disappoint. A sharp correction in US equity markets, where foreign ownership has risen over decades, could trigger wealth losses abroad, weaken global consumption, and hit even low-income and high-debt economies through slower demand and higher borrowing costs.
