In a boost for India, the International Monetary Fund (IMF) has raised the country’s GDP growth forecast for the next two fiscal years despite the ongoing Middle East conflict. IMF has raised India’s GDP growth estimates to 6.5% for FY2027 and FY2028.“In India, growth for 2025 is revised upward by 1.0 percentage point relative to October, to 7.6 percent, reflecting the better-than-expected outturn in the second and third quarters of the fiscal year and sustained strong momentum in the fourth quarter,” IMF said as part of its World Economic Outlook for April 2026.“For 2026, growth is revised upward moderately by 0.3 percentage point (0.1 percentage point relative to January) to 6.5 percent, led by positive contributions from the carryover of the strong 2025 outturn and the decline in additional US tariffs on Indian goods from 50 to 10 percent, which outweigh the adverse impact of the Middle East conflict. Growth is projected to stay at 6.5 percent in 2027,” IMF said.This means that India will continue to retain its tag of being the world’s fastest growing major economy over the next two years as well.
Middle East Conflict To Weigh on Global Economy
However, the fund has lowered its outlook for global economic growth in 2026, cautioning that the ongoing conflict in the Middle East could derail the trajectory of the world economy by unsettling commodity markets and driving up prices.The IMF has projected global growth at 3.1 percent for the year. This marks a downgrade from the 3.3 percent estimate issued in January, before tensions escalated following joint US-Israeli strikes on Iran on February 28, which triggered retaliation from Tehran and widened the conflict across the region.IMF chief economist Pierre-Olivier Gourinchas noted that, in the absence of the conflict, growth projections for 2026 might have been revised upward to 3.4 percent.The hostilities have pushed up the prices of key commodities such as oil, gas and fertilizers, particularly as Iran has effectively disrupted traffic through the Strait of Hormuz, a vital corridor for global shipments. At the same time, Donald Trump has ordered a naval blockade targeting Iranian ports.As a result, the IMF now expects global inflation to rise to 4.4 percent this year, which is 0.6 percentage points higher than its earlier forecast. Gourinchas added that the downward trend in inflation seen in recent years is likely to resume after this phase.However, these projections are based on the assumption that the conflict remains relatively brief and that disruptions to energy markets are temporary. Gourinchas warned that there is a real risk of the situation escalating into a full-scale energy crisis.In a more severe scenario where elevated energy prices persist throughout the year, global growth could drop sharply to 2.5 percent or even close to 2.0 percent. He pointed out that since 1980, global growth has fallen to around 2 percent or lower only on four occasions, including during the 2008 global financial crisis and the COVID-19 pandemic.Even though the overall changes to global growth and inflation projections are relatively limited, the IMF warned that the effects of the conflict are far more pronounced in the Middle East and across more fragile economies.According to the Fund, emerging markets and developing nations are likely to bear a disproportionately larger burden, with the impact on them estimated to be nearly double that faced by advanced economies.Among the world’s two largest economies, the United States is still expected to see growth pick up to 2.3 percent this year, although the forecast has been trimmed slightly. Gourinchas pointed out that higher energy prices offer some marginal benefit to the US, even as consumers face rising gasoline costs.Meanwhile, China is projected to expand by 4.4 percent, also slightly below earlier estimates. The IMF highlighted underlying imbalances in both economies. In China, exports continue to outperform domestic demand, whereas in the US, solid economic output has not been matched by strong job creation.
