Syllabus: GS3/ Economy
Context
- According to the April 2025 edition of the IMF’s World Economic Outlook, India will remain the fastest growing major economy over the next two years.
World Economic Outlook Report
- The World Economic Outlook (WEO) is the International Monetary Fund’s key report on global economic trends and policy challenges.
- Published twice a year it provides projections for the near and medium term, covering advanced, emerging, and developing economies.
Key highlights
- India’s Growth outlook: India is projected to remain the fastest-growing large economy and is expected to grow by 6.2 percent in 2025 and 6.3 percent in 2026.
- Global Growth outlook: The global economic growth will be much lower, at 2.8 percent in 2025 and 3.0 percent in 2026.
- Emerging Asia: The region is also expected to grow strongly, led by India, but faces downward revisions due to global trade disruptions.
Reasons for slowdown in world economy
- Tariff War 2.0: Since early 2025, new tariffs by the US on imports, coupled with retaliatory measures, have triggered a fresh wave of trade tensions.
- Slowing Consumer Confidence: As new tariffs increase costs and lower disposable incomes, consumer spending has weakened, especially in the US and Europe.
- Inflation: While headline inflation has cooled from its peak, core inflation remains sticky, particularly in services.
- Diminished Policy Space: High public debt and rising interest rates have limited the ability of governments to respond with countercyclical policies.
- Aging populations in countries like Japan, Germany, and China are reducing the available workforce, constraining long-term growth.
Reasons for India’s Resilience
- Domestic Demand: India’s growth remains largely driven by robust domestic consumption and investment, particularly in infrastructure and services.
- This has weakened global investor sentiment, triggered financial market volatility, and elevated policy uncertainty to unprecedented levels
- Structural Strengths:
- A young population and expanding digital economy.
- A growing middle class with increasing consumption power.
- Government-led capex push and PLI schemes that bolster industrial activity.
Way Ahead
- Structural reforms: Durable structural reforms across several areas, including labor markets, education, regulation and competition, and financial sector policies, can jointly lift productivity and potential growth and support job creation.
- Technological Integration: Technological progress, related to digitalization and AI, can enhance productivity and potential growth.
- Fiscal Prudence: Maintaining fiscal sustainability amid high global debt and rising interest rates is critical.
| International Monetary Fund (IMF) – The IMF was established in 1944 in the aftermath of the Great Depression of the 1930s. – The organization is currently composed of 190 member countries. 1. Each member has representation on the IMF’s executive board in proportion to its financial importance. – The primary goal of the IMF back then was to bring about international economic coordination to prevent competing currency devaluation by countries trying to promote their own exports. – Eventually, the IMF evolved to be a lender of last resort to governments of countries that had to deal with severe currency crises. |
Source: PIB
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