In today’s Finshots, we discuss whether the IMF’s growth projections are accurate and if India can grow at the rate it projects.

The Story

Last week, the International Monetary Fund (IMF) nudged India’s growth forecast a little higher for FY26 (April 2025 to March 2026). Its latest World Economic Outlook (WEO) — the report it publishes twice a year in April and October, with quick updates in January and July, now believes that India’s GDP will grow at 6.6%, as compared to the 6.4% it had estimated back in July.

That may not sound like a massive jump, but the upgrade comes despite a big external blow or the steep 50% tariffs imposed by US President Donald Trump on Indian exports. Now, you’d think that kind of trade shock would dent growth expectations. But the folks at the IMF seem upbeat because India’s economy surprised everyone in the first quarter of FY26 by clocking 7.8% growth. And that kind of momentum, they say, can cushion some of the damage from weaker exports in the months ahead.

Which got us thinking — how accurate are IMF growth forecasts anyway?

To answer that, we dug into past editions of the WEO, compared the forecasts against actual GDP growth numbers and read other research papers, and what we found was pretty interesting.

For starters, a Quartz story points out that IMF forecasts are usually quite accurate. Most of the time they’re only off by less than 1%. But there’s a catch. Their predictions tend to go wrong in the two to three years before and during economic downturns.

Look at the data from 1980 to 2024 and you’ll see the pattern. Forecasts were generally on track during stable years but slipped before and during recessions. For example, during the early 1990s recession and again around the 2008–09 global financial crisis. The IMF predicted that the global economy would shrink only slightly by 0.1% in 2009. But the real damage was far worse, with global GDP actually falling by 1.3%.

You can see this clearly in the chart below.

A similar story repeated during Covid. The IMF’s forecasts during the pandemic were closer to reality but still a bit optimistic. It projected global growth would fall from 2.8% in 2019 to –3% in 2020. But in reality, growth slipped from 2.6% to –3.1%. Sure, that isn’t huge, but in the years before the pandemic, the IMF’s projections were up to 0.5% higher than the actual numbers.

And this isn’t a one-off problem. A 2020 IMF working paper found that the IMF regularly overestimates growth. The bias is small each year, around 0.2%, but it compounds over time and becomes a full 1% after five years.

All this shows one thing — the IMF tends to be optimistic quite often. And that makes you wonder if India’s upgraded growth forecast, despite the tariff hit from the US, is as reliable as it sounds.

But here’s the thing. The IMF isn’t blindly optimistic. There are reasons why its forecasts often lean on the sunnier side.

To begin with, it doesn’t fully account for financial stress in the economy, especially during or after a crisis. That’s because when an economy is in trouble, businesses struggle, unemployment rises and confidence falls. To deal with this, governments and central banks step in with expansionary policies. They cut interest rates, pump money into banks to keep credit flowing, buy government bonds (quantitative easing) or provide emergency loans to financial institutions. And that, the IMF assumes, will quickly revive growth. But in reality, recoveries take time, and the impact of these policies often shows up with a delay. So IMF forecasts end up overstating how fast growth will bounce back.

Then there’s another issue. Before many crises, countries often experience a credit boom. People and businesses borrow heavily. This creates something called a credit-to-GDP gap, which basically means debt levels rise much faster than the size of the economy. And when that gap becomes too large, it signals future trouble. Growth slows, and if countries have borrowed in foreign currencies, the problem worsens because debt becomes harder to repay when their currency weakens. But the IMF doesn’t fully capture how this debt burden drags down growth, and ends up being too optimistic with its projections.

But it doesn’t stop there. IMF forecasts often build in the expectation that countries will successfully carry out fiscal reforms or policy changes, especially if they’re part of IMF-supported programmes. But reforms could get delayed, watered down or blocked by politics and when that happens, growth doesn’t match expectations.

And finally, optimism also shows up when data isn’t reliable. A 2024 World Bank study found that between 2010 and 2020, the IMF and World Bank got same-year GDP growth estimates wrong by around 1.3–1.5% on average. And the largest errors were in the Middle East and North Africa, where economic data is often weak or delayed. Poor statistics and lack of transparency make it harder to forecast accurately. But the study also found that even a small improvement in data quality, measured by something called Statistical Performance Indicators (SPI, formerly Statistical Capacity Index), can reduce forecast errors by nearly 0.4%.

Which brings us back to the question that if the IMF’s global forecasts are often shaky, how accurate are its projections for India?

Surprisingly, India seems to be an exception.

You’ll see this if you plot India’s projected GDP growth against actual growth over the years starting from 1980. The difference is tiny, barely 0.01%, and that too just for a few select years. That’s so small that it’s statistically meaningless.

And there are two simple reasons for this.

One, the IMF updates India’s forecasts far more frequently than it does for most countries. While many economies get only two updates a year, India often triggers mid-year revisions in the WEO, because its economic data moves quickly. As we saw earlier, the IMF revised its FY26 forecast to 6.6% after India reported 7.8% growth in the first quarter. The IMF also uses high-frequency indicators for India, things like GST collections, bank credit growth and manufacturing PMI. These get fed into its models through the year, so by the end of the fiscal cycle, most of the data is already known. That leaves very little room for large forecast errors.

And two, India has relatively reliable and timely GDP data for an emerging economy. Growth numbers are published every quarter with short delays and fewer changes compared to many developing countries. 

India even ranks among the top emerging economies in terms of data completeness if you go by its SPI. In contrast, countries in regions like Africa, Latin America and West Asia often release data late or with gaps, forcing the IMF to rely on rough estimates and outdated inputs. It’s no wonder that the projections for those regions turn out less accurate.

So yeah, while the IMF may look overly optimistic at a global level, the story for India may genuinely be different. Its forecasts for India have been far more dependable. In fact, IMF Managing Director Kristalina Georgieva has said India has repeatedly proven sceptics wrong with reforms like GST and the rapid rise of digital payments. Back in 2023, she even said that while growth in 90% of advanced economies would stall, Asia led by India and China, would account for half of global economic expansion.

And we’ll just have to wait and see if this really holds up. Until then…

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