IMF keeps India’s FY25 GDP growth forecast unchanged at 7%

IMF forecast for the Indian economy

The International Monetary Fund (IMF) kept India’s GDP growth forecast for FY25 unchanged at 7 percent, its new World Economic Outlook showed on October 22.

"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," IMF said in its report.

The multilateral development bank projected the economy to grow 6.5 percent in FY26, also unchanged from its previous outlook in July.

The Indian economy had expanded 6.7 percent in the first quarter of FY25, according to data released by the government in August.

While high-frequency data shows that growth likely tapered in the second quarter, the Reserve Bank of India, in its latest review, kept the FY25 forecast unchanged at 7.2 percent, projecting 7.4 percent growth in the second half of the fiscal.

The IMF forecast follows World Bank’s upgrade in September, which had also revised its growth projection to 7 percent from 6.6 percent in September.

Inflation to be lower

The IMF was more optimistic than the Indian central bank on the inflation front, projecting 4.4 percent rise in consumer prices compared with the previous year, down from 4.6 percent projected in April outlook.

Inflation will likely move closer to RBI target of 4 percent next fiscal, coming in at 4.1 percent in FY26 compared with 4.2 percent projected earlier.

The Reserve Bank of India kept inflation forecast unchanged at 4.5 percent for FY25.

India's retail inflation rose to a nine-month high of 5.5 percent in September and is likely to remain elevated in October as well owing to high vegetable prices.

Current account deficit is likely to widen to 1.1 percent in FY25 from 0.7 percent in FY24, and further to 1.3 percent in FY26.

Steady global growth, on path to disinflation

The global institution projected no change in global growth outlook at 3.2 percent for 2024, but revised 2025 projection down by 0.1 percentage point to 3.2 percent.

"Absent a strong drive for structural reforms, output growth is expected to remain weak over the medium term," the fund noted.

China's forecast was revised down to 4.8 percent from 5 percent projected earlier, US is expected to growth faster but in Euro Area growth is expected to slow down.

"Despite the good news on inflation, downside risks are increasing and now dominate the outlook. An escalation in regional conflicts, especially in the Middle East, could pose serious risks for commodity markets," said IMF chief economist Pierre-Olivier Gourinchas, highlighting risks.

"Monetary policy could remain too tight for too long, and global financial conditions could tighten abruptly," Gourichas further added.

The central bank's monetary policy committee decided to keep rates on hold for the tenth consecutive time at its meeting in October.