India expected to overtake Japan as world's 4th largest economy in 2027: IMF

India is projected to become the world's fourth-largest economy by 2027, surpassing Japan, according to the International Monetary Fund's latest predictions. Japan is set to drop to sixth place that year, behind both India and the United Kingdom. Despite facing global economic challenges, India's GDP is expected to reach $4.52 trillion in 2027.

The IMF raised its growth forecast for India to 7.0 percent in 2026, citing strong fundamentals, fiscal prudence, and substantial foreign reserves. In contrast, Japan is grappling with an aging population and structural issues that have led to stagnant growth. The IMF's Asia Director, Krishna Srinivasan, noted that India entered the recent energy price shock from a strong position, with robust growth, prudent fiscal policies, and ample reserves.

Japan, however, has been more adversely affected by the surge in energy prices, further fueled by the Iran war-induced inflation. The Bank of Japan has raised interest rates to their highest in three decades to combat the inflationary pressures. Japan's economy is also impacted by its aging population and the yen's decline, which has made imports more expensive.

While Japan's economy is benefiting from investments in artificial intelligence, it is not to the same extent as its neighboring countries. The Tokyo benchmark Nikkei index fell by nearly five percent on Thursday, hurt by a decline in tech stocks due to concerns over the AI sector's profitability.