The International Monetary Fund (IMF) has adjusted its growth forecast for India for the 2027 fiscal year, lowering it by 10 basis points to 6.4%, compared to the forecast presented in April. The Fund attributed this to elevated energy prices potentially offsetting the resilience of economic activity in the country.
Forecast Updates and Influencing Factors
Denis Egan, Deputy Head of the Macrofinance Department of the IMF's Research Department, told reporters in Washington, D.C., that while high-frequency indicators up to April show significant economic resilience, positive effects in 2026 are being overshadowed by higher energy prices in the base July update, as well as the broader spread of these fuel prices across India. He added that growth is expected to accelerate in 2027 as the energy shock subsides, with medium-term growth estimated at around 6.5 percent.
Outlook for 2028 and Overall Picture
Regarding the 2028 fiscal year, the multilateral body raised the growth forecast by 20 basis points to 6.7%. The IMF noted that India remains one of the largest fast-growing economies, with its growth supported by strong momentum in private consumption and the services sector, according to the World Economic Outlook (WEO) update.
The report also highlighted that adjustments for emerging markets and developing economies are heterogeneous, reflecting differences in commodity dependence, geographical exposure, remittance inflows and tourism, sensitivity to financial conditions, and position in the global technology supply chain.
Global Context and Other Markets
The Fund increased China's growth forecast by 20 basis points to 4.6% for 2026. However, it warned that the economy will slow down compared to 5% in 2025 due to higher global oil prices, prolonged uncertainty, and structural impediments that will pressure activity.
Global growth is projected at 3.0% in 2026, lower than the initial estimate of 3.1% in April. This moderate slowdown is linked to the consequences of the Middle East war, partially offset by an accelerated impulse driven by demand in the global technology cycle due to advancements in Artificial Intelligence (AI) and its adoption.
Geopolitical and Energy Impact
The IMF indicated that the impact of this factor varies greatly depending on the degree of countries' involvement in the conflict and their position in the technology chain. Energy exporters outside the conflict zone benefit from favorable trade conditions, while economies integrated into the technological upswing show higher activity even when they are energy importers. Conversely, activity weakens among energy importers with limited participation in the technology chain, which includes many low-income countries.
It is worth noting that the Reserve Bank of India (RBI) adjusted its 2027 growth forecast last month to 6.6% from the previous 6.9%, citing risks related to the conflict in West Asia, rising crude oil prices, and weather uncertainties.
Price Forecasts and Fiscal Policy
The IMF forecasts that energy prices will remain higher than before the war. The average spot price index for oil is estimated at $89 per barrel, which is 9% higher than assumed in the WEO reference forecast for April 2026. Natural gas prices, based on Dutch Title Transfer Facility futures, are projected to be 15.5% higher than in April. This corresponds to a 32% increase in crude oil prices and a 22% increase in natural gas prices in 2026 relative to 2025. Furthermore, fertilizer prices are expected to rise by 26%, and due to higher costs for energy, fertilizers, and transport, food prices are expected to increase by 8%.
In developing countries and economies, the IMF anticipates a gradual tightening of fiscal policy. In Asian emerging markets importing crude oil, deteriorating terms of trade have exacerbated inflation expectations and put pressure on exchange rates, leading to a sharper increase in expected policy trajectories.
Need for Consolidation and Risks
The IMF emphasized that restoring fiscal space is critical amid high debt, rising borrowing costs, and increased external uncertainty. Confidence in medium-term consolidation must be based on sustainable measures to increase revenues, improve tax administration, enhance expenditure efficiency, and reallocate resources towards growth-promoting priorities such as infrastructure, skills, and targeted social protection. In high-debt economies, adjustment may require deeper spending rationalization and active management of interest rate and refinancing risks.
The Fund believes that risks are more balanced than in April but remain skewed toward downside. A resurgence of geopolitical tensions (in West Asia) will negatively affect growth and intensify inflationary pressure. However, if the Strait of Hormuz opening proceeds more smoothly than anticipated and commodity prices fall below the baseline, growth could be higher and inflation lower.
The IMF also noted that activity could unexpectedly pick up in the short term if AI-related capital expenditures remain exceptionally strong or if financial conditions continue to ease, compensating for the negative impact of geopolitical tension, trade fragmentation, and weak policy buffers. Nevertheless, the fund warned that 'the hype around AI and rapidly developing financial markets could simultaneously sow the seeds of macro-financial instability.'