IMF raises India's growth forecast for FY27 and FY28 amid strong domestic demand, credits AI for helping world economy

The International Monetary Fund (IMF) has raised its global growth forecast for 2026 to 3.1%. This is higher than its July estimate of 3%. However, growth remains below last year's 3.5%. The forecast for 2027 stays unchanged at 3.4%, CNBC reported. The IMF published estimates in its October World Economic Outlook.

Investment linked to artificial intelligence (AI) has helped support the world economy. It has partly reduced the damage caused by rising energy costs. Economic activity during the year's first half was stronger than expected. This happened despite the war in the Middle East and trade tensions.

IMF has raised India's growth forecast to 7% for both FY27 and FY28. Its earlier estimates were 6.4% and 6.7%, respectively. Strong domestic demand and services activity are supporting growth.

This comes despite high oil prices and global tensions. India's economic momentum could remain strong over both financial years.

Its inflation forecast for 2026 remains 4.7%. For 2027, the forecast has risen to 4.1%, from July's 3.9%. Growth is also becoming more uneven across countries. Just 32 economies now account for 95% of global growth.

That number was 54 in April. Countries supplying the AI industry are performing better. Taiwan's economy is forecast to grow 10.7% while South Korea's could expand 3.3% this year.

The IMF released its report during the annual meetings with the World Bank in Bangkok. Officials from its 191 member states are discussing economic issues, government debt and AI.

The fund said that financial markets had remained calm. It suggested excitement around AI could partly explain this stability.

However, the IMF warned that AI's investment boom also creates risks. Large amounts are flowing into computer chips, data centres and power generation.

These investments are happening before widespread improvements in productivity have appeared. Spending is putting pressure on prices and increasing financial risks.

If AI delivers disappointing results, companies could sharply reduce investment. Share prices could also fall as investors rethink expected profits.

Under one warning scenario, American shares could drop 20%. Global growth could fall by 1.1% relative to the IMF's main estimates by 2028. Asia's growth could be 1.7% lower under the same scenario.

Energy shortages could also weaken the growth supported by AI investment. Countries have managed disruptions by sourcing alternative fuel suppliers and drawing on emergency reserves. But these protections are becoming weaker.

Global oil reserves are declining by about 2.7 million barrels per day. The IMF warned that shrinking reserves could cause sharp price changes.

The fund now expects the Strait of Hormuz to reopen in March 2027. It expects conditions there to return to their earlier state by October.