India set to overtake Japan as fourth-largest economy

The International Monetary Fund (IMF) projects India to surpass Japan as the world's fourth-largest economy by 2027, according to its latest Asia-Pacific economic outlook released on Thursday. Japan is expected to drop to sixth place in that year, falling behind both India and the United Kingdom, the projection showed.

India's GDP is forecast to reach US$4.52 trillion by 2027, up from its current position as the third-largest economy. The IMF also raised its growth forecast for India in 2026 to a robust 7 percent, despite global economic headwinds. In contrast, Japan's growth is projected to stagnate, with a meager 0.7 percent increase expected in 2026 due to an aging population and structural issues.

The IMF's Asia director, Krishna Srinivasan, highlighted India's strong fundamentals as a key factor in its resilience during the recent energy price shock caused by the US-Israel war on Iran. India entered the crisis with strong growth, fiscal prudence, and substantial reserves, enabling it to respond effectively to the shock. Meanwhile, Japan is grappling with escalating energy prices and inflation, which have led the Bank of Japan to raise interest rates to their highest level in three decades.

Srinivasan noted that Japan's economy is benefiting from investments in artificial intelligence but not as significantly as its regional neighbors. The fall of the yen, which hit a 40-year low against the dollar over the summer, is also driving up the cost of imports. Japan's aging population further weighs on its economic activity.