IMF boosts India's FY25 growth forecast to 7% from 6.8%; check details

"Services price inflation is impeding progress on disinflation, complicating the normalization of monetary policies. This situation raises the possibility of prolonged higher interest rates," the IMF's statement said.

The International Monetary Fund (IMF) has raised India's growth forecast for the fiscal year 2024-25 to 7 percent, up from its earlier projection of 6.8 percent made in April. This revision comes closely with recent upward adjustments by the Reserve Bank of India, which had also increased its growth outlook to 7.2 percent in June. However, amidst these positive developments, the IMF has flagged concerns about global inflation dynamics, noting that inflation rates in many major economies are cooling slower than expected.

This slower cooling trend poses risks to global growth prospects, potentially prolonging higher interest rates globally. Highlighting specific concerns, the IMF pointed to persistent services inflation fueled by rising wages, alongside price pressures stemming from ongoing trade tensions and geopolitical uncertainties.

"Services price inflation is impeding progress on disinflation, complicating the normalization of monetary policies. This situation raises the possibility of prolonged higher interest rates," the IMF's statement said.

Globally, the IMF maintained a cautiously optimistic outlook, keeping this year's growth forecast unchanged at 3.2 percent while slightly upgrading next year’s projection by 0.1 percentage points to 3.3 percent. Chief Economist Pierre-Olivier Gourinchas stressed that beneath the surface, there have been significant developments shaping the global economic landscape.

Turning its attention to the United States, the IMF expressed concern over its fiscal stance, particularly given its full employment status. Gourinchas highlighted, "It is concerning that a country like the United States continues to increase its debt-to-GDP ratio, posing risks to both domestic and global economies."

Additionally, the IMF provided a positive revision for China, upgrading its growth forecast by 0.4 percentage points to 5 percent for this year, citing robust private consumption and strong export performance in the first quarter. Despite this optimism, the IMF cautioned about underlying vulnerabilities in China's economy, particularly in the property sector, forecasting a slowdown to 3.3 percent growth by 2029.