India expected to overtake Japan as world's 4th largest economy

India is projected to become the world's fourth-largest economy by 2027, surpassing Japan according to International Monetary Fund (IMF) predictions. The IMF outlined the contrasting futures of the two Asian nations, stating that India's GDP is expected to reach $4.52 trillion in 2027, pushing Japan to sixth place as it falls behind both India and the United Kingdom.

Despite global economic challenges, India has experienced robust growth over recent years, with the IMF recently increasing its forecast for 2026 growth to 7.0 percent. In contrast, Japan's growth has stagnated due to an aging population and structural issues. The United States remains the world's largest economy, followed by China and Germany.

Asia Director Krishna Srinivasan noted that India entered the recent energy price shock caused by the US-Israel conflict with Iran from a strong position, with solid fundamentals, fiscal prudence, and substantial reserves. Japan, however, is projected to see a slowdown in growth to 0.7 percent in 2026, heavily impacted by rising energy prices and inflation.

The Bank of Japan has been raising interest rates to their highest level in three decades due to the increase in consumer prices since spring 2022 and further fuelled by the soaring energy prices from the Iran war. The fall of the yen to its lowest level in 40 years against the dollar has also exacerbated the cost of imports. While Japan's economy benefits from increased investments in artificial intelligence, this growth is less pronounced compared to its regional neighbors.