IMF’s Growth Projections for India
The IMF maintained its earlier growth forecast for India at 7% in FY25 and 6.5% in FY26, indicating a gradual moderation from the 8.2% growth in FY24. According to the report, pent-up demand accumulated during the pandemic has now been fully released, and the Indian economy is “reconnecting with its potential growth.”
This trajectory aligns with the RBI’s growth estimates, which project a 7.2% growth rate for FY24, supported by strong consumption and investment momentum. However, the IMF’s cautious view suggests that growth will stabilize at lower levels over the next two fiscal years as pandemic-driven demand tapers off.
Global Growth Forecasts and Implications for India
On the global front, the IMF noted little change in its forecasts, with 3.2% global growth expected in 2024 and 2025. This projection represents a modest expansion, with slight downward revisions for some regions. China’s growth forecast for 2024 was revised down to 4.8% (a 20 basis points reduction), reflecting concerns over the property sector slowdown and its impact on global trade. Conversely, the U.S. economy received an upward revision to 2.8%, supported by stronger domestic activity. The IMF cautioned that prolonged weaknesses in China’s property sector could spill over into the global economy, creating headwinds for global trade and consumption sentiment
Inflation Outlook and Monetary Policy Challenges
The IMF projected India’s inflation at 4.4% in FY25 and 4.1% in FY26, indicating a gradual return to stability. Globally, headline inflation is expected to decline from 6.7% in 2023 to 5.8% in 2024 and 4.3% in 2025.
While goods prices have largely stabilized, the report noted that services inflation remains high across many regions. As a result, central banks will need to carefully calibrate monetary policies to balance inflation control with economic growth.
Sectoral Shifts: Goods vs. Services Consumption
One of the critical trends highlighted in the report is the global shift from goods to services consumption. The report observed that manufacturing production is increasingly relocating to emerging markets like India and China, as advanced economies lose their manufacturing competitiveness.
India is expected to benefit from this transition, especially in manufacturing and services, with these sectors receiving a boost from both domestic and global demand. However, the IMF warned that the rebalancing would dampen manufacturing activity in advanced economies.
What Does This Mean for India’s Economy and Stock Market?
The IMF’s outlook suggests that while India’s growth story remains strong, the economy will experience moderation as pandemic-induced demand fades. Additionally, global economic developments—particularly those in China, the U.S., and commodity markets—will play a critical role in shaping the trajectory of India’s economy.
For markets, the report underscores the importance of monitoring inflation trends and global capital flows, as monetary policy shifts will directly impact market sentiment. As India continues to attract manufacturing and services demand, it remains well-positioned to leverage these sectoral shifts, contributing to its long-term growth potential.
