IMF cuts India view, cautions against global de-integration

The 21st-century world is deeply integrated with interconnected supply chains and financial flows, and any unwinding of this integration could trigger significant economic upheaval, the International Monetary Fund (IMF) cautioned.

The warning came on a day IMF's World Economic Outlook (WEO) cut India’s growth forecast for the current fiscal year to 6.2% and slashed its global trade outlook, as the US tariff war raises concerns worldwide. The fund had earlier predicted 6.5% growth for India in October, which was reiterated in January. The latest revision comes after similar cuts by the Asian Development Bank (ADB), Moody's Analytics and S&P Global.

"The uncertainty around trade policy is also a major factor depressing our outlook. Faced with increased uncertainty about access to markets—their own but also those of their suppliers and customers—many firms’ initial reaction will be to pause, reduce investment, and cut purchases," IMF's economic counsellor Pierre-Olivier Gourinchas said. "Likewise, financial institutions will re-evaluate their credit supply to businesses, until they can assess the latter’s exposure to the new environment," he added.

Fastest growth

The Economic Survey 2024-25 said that despite global headwinds, India remains the fastest-growing major economy, with FY26 growth seen between 6.3% and 6.8%, supported by rural demand, services, andmanufacturing.

The IMF said India's growth outlook is relatively more stable at 6.2% in 2025 (2025–26), supported by private consumption, particularly in rural areas, but this rate is 0.3 percentage points lower than that in the January 2025 World Economic Outlook update on account of higher levels of trade tensions and global uncertainty. In FY27, IMF expects India to grow at 6.3%.

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The IMF presents India's economic data and predictions on a fiscal year basis, while it uses the calendar year for other economies.

In April, the US imposed a 27% reciprocal tariff on Indian goods, citing India’s average 52% duty on US imports, as a part of a broader strategy to address trade imbalances and protect domestic industries. However, the US later eased the tariff to 10% on April 9, offering temporary relief to India and other trading partners. Despite this adjustment, the tariffs continue to pose challenges, impacting currency stability, capital flows, and trade dynamics.

Global trade slowdown

The multilateral agency now expects global trade to grow at 1.7% in 2025, down from 3.8% in the previous year.

Meanwhile, the Asian Development Bank has also cut its FY26 growth forecast for India to 6.7% from 7%, citing the risks from potential US tariffs and broader global uncertainty.

The IMF now projects global GDP to expand by 2.8% in 2025 and 3% in 2026, down from the 3.3% forecast for both years in its January 2025 update. This marks a cumulative downgrade of 0.8 percentage points, pushing growth well below the 2000–2019 average of 3.7%, the IMF said.

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Advanced economies are expected to grow just 1.4% in 2025, with the US economy slowing to 1.8%, nearly a full percentage point below earlier estimates due to softer demand, policy uncertainty, and trade frictions.

Muted Europe

Europe is projected to grow at a muted 0.8%, while growth in emerging markets and developing economies is seen easing to 3.7% in 2025 and 3.9% in 2026, with China among the hardest hit by recent trade measures.

Meanwhile, global inflation is expected to decline more gradually than earlier forecast, reaching 4.3% in 2025 and 3.6% in 2026, with upward revisions for advanced economies and slight downward adjustments for emerging markets, IMF said.

The Reserve Bank of India has trimmed its FY26 forecast to 6.5% and adopted an accommodative stance, while the World Bank retained its 6.7% estimate, citing strong fundamentals.

Risks persist from trade disruptions and geopolitical tensions, but improved employment, credit access, and easing inflation are expected to boost private consumption.

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