IMF predicts India as key growth driver in Asia-Pacific region

India set to lead region’s economic recovery amid global uncertainties, says IMF

The International Monetary Fund (IMF) has reaffirmed India’s status as the world’s fastest-growing economy, attributing this momentum to strong investment and private consumption. In its latest Regional Economic Outlook for the Asia-Pacific, released on October 2, the IMF projected India’s gross domestic product (GDP) growth at an impressive 7 percent for FY25 and 6.5 percent for FY26.

While growth across the Asia-Pacific region is anticipated to slow in 2024 and 2025 due to diminishing pandemic recovery benefits and demographic challenges, the short-term economic outlook is more favorable than previously expected. The IMF slightly revised the growth forecast for the Asia-Pacific region in 2024 to 4.6 percent, an increase of 0.1 percentage points, largely due to strong performance early in the year. The region is expected to contribute approximately 60 percent to global growth in 2023.

However, the IMF cautioned that the outlook is fraught with significant economic and geopolitical uncertainties. A blog accompanying the report noted that while manufacturing has traditionally fueled growth in Asia, a shift towards modern, tradable services could become a new engine for growth and productivity. The services sector has already attracted nearly half of the region’s workforce, a significant increase from 22 percent in 1990, as workers transition from agriculture and manufacturing.

This trend is expected to accelerate with the expansion of international trade in modern services such as finance and information technology, along with business outsourcing, as exemplified by India’s and the Philippines’ growing service industries.

Looking ahead to 2025, the IMF anticipates more favorable monetary conditions that could bolster economic activity, raising the growth forecast to 4.4 percent, up from 4.3 percent in April. Although inflation has eased across much of the region, rising geopolitical tensions and uncertainty regarding global demand present additional risks. Furthermore, demographic changes are likely to increasingly restrain economic activity, although a structural shift towards high-productivity sectors such as tradable services offers potential for sustained growth.

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