IMF projects India to overtake Japan as world's fourth-largest economy by 2027

India is projected to become the world's fourth-largest economy by 2027, overtaking Japan, according to International Monetary Fund projections released on Thursday that set out the contrasting trajectories of the two Asian economies. The IMF said Japan would remain the fourth-largest country by nominal gross domestic product this year, but that India is set to take its place in 2027 with GDP reaching $4.52 trillion. Japan is slated to slip to sixth place that year, falling behind both India and the United Kingdom.

The projections accompany the IMF's regional economic outlook for Asia-Pacific. Krishna Srinivasan, the fund's Asia director, said India entered the current energy price shock caused by the US-Israel war on Iran from a strong position. "India entered this with very strong fundamentals," he said. "Growth was strong, fiscal prudence was pretty much enshrined, they had lots of reserves and so on. And so in that context, they have responded well to the shock." The IMF this week raised its forecast for India's 2026 growth to 7.0 percent.

Japan's growth, by contrast, is projected to slow to 0.7 percent in 2026. The country has been hard hit by higher energy prices and wider inflation, and the Bank of Japan has raised interest rates to their highest level in three decades. Long haunted by deflation, Japan has seen consumer prices rise steadily since the spring of 2022, with spiking energy prices from the Iran war adding to those increases. The yen's decline, which took it to its lowest level in 40 years against the dollar over the summer, is further driving up import costs, while an aging population continues to weigh on economic activity.

Srinivasan said Japan's economy was benefiting from the boom in artificial intelligence investment, but not as much as its regional neighbours. The benchmark Nikkei index in Tokyo fell by nearly five percent on Thursday, dragged down by a plunge in technology stocks amid doubts over the profitability of the AI sector. The United States remains the world's largest economy, followed by China and Germany.