India To Escape West Asia War Damage? IMF Hikes India's FY27 GDP Growth Forecast, Cuts Global Outlook

The International Monetary Fund (IMF) has announced its global economy forecast for FY27. The IMF noted that global growth remained resilient despite various headwinds in 2025, however, that has changed for the year 2026 due to the US-Israel-Iran war in West Asia. The IMF said the Middle East war has caused serious damage. Accordingly, the monetary body trimmed the global growth forecast. But India is likely to continue as the fastest-growing economy globally, as the IMF has raised the country's GDP growth estimate by 0.1% for FY27.

IMF Raises India GDP Growth Estimates

IMF hiked India's gross domestic product (GDP) growth estimate by 0.01% to 6.5% for financial year 2026-27. The growth is expected to be steady at 6.5% for FY28 as well.

In a note, IMF said, "For 2026, growth is revised upward moderately by 0.3 percentage point (0.1 percentage point relative to January) to 6.5%, led by positive contributions from the carryover of the strong 2025 outturn and the decline in additional US tariffs on Indian goods from 50 to 10%, which outweigh the adverse impact of the Middle East conflict. Growth is projected to stay at 6.5% in 2027."

In the Q3 of FY26, India's GDP growth stood at 7.8%, better than market expectations of 7.2%. However, growth rate pulled back from six-quarter high mark 0f 8.4% in Q2FY26.

However, the IMF's latest prediction is mildly lower than the RBI's latest prediction of a GDP growth rate of 6.9% for FY27. RBI estimates India's growth rate at 6.8% in Q1, 6.7% in Q2, 7% in Q3 and 7.2% in Q4 of 2026-27 fiscal year.

As per RBI, elevated energy and other commodity prices coupled with supply shock due to disruptions in the Strait of Hormuz would act as a drag on domestic production in 2026-27. Heightened volatility in global financial markets with its spillover on domestic financial conditions, would weigh on growth prospects. On the external front, merchandise exports may be adversely impacted from disruptions to key shipping routes and the concomitant rise in freight and insurance costs in case the conflict is long-drawn.

IMF Cuts Global Growth Forecast For FY27:

IMF predicts global economic growth at 3.1% for FY27, down by 0.2% from previous forecast of 3.1%. The main reason is the current Middle East conflict. For the year 2027, the projection is at 3.2%.

"The global outlook has abruptly darkened following the outbreak of war in the Middle East on February 28, 2026. The closure of the Strait of Hormuz and serious damage to critical production facilities in a region central to global hydrocarbon supply could cause an energy crisis on an unprecedented scale," IMF said in a note.

West Asia's ultimate impact will depend upon the duration and scale of the conflict. Apart from this, how quickly energy production and shipment normalize once hostilities end will play a key role.

IMF highlighted 3 impacts of West Asia war. These are:

1. First, higher commodity prices are a textbook negative supply shock, raising costs for energy‑intensive goods and services, disrupting supply chains, lifting headline inflation, and eroding purchasing power.

2. Second, these effects could be amplified as firms and workers try to recoup losses, risking wage‑price spirals, especially where inflation expectations are poorly anchored.

3. Third, heightened macro risks and the prospect of tighter monetary policy could trigger a sudden repricing by financial markets-with much lower asset valuations, higher risk premia, more capital flight, and dollar appreciation-tightening financial conditions and dampening aggregate demand.

The IMF fears if the Hormuz continues to be close for a longer duration, the impact could be even graver. It said, "A longer shutdown of the Strait of Hormuz and further damage to drilling and refining facilities would disrupt the global economy more deeply and for longer."

Assuming a sharp surge in energy prices in 2026 and a longer-than-expected shutdown of Hormuz, the global economic growth could nosedive to 2.5% this year with inflation shooting up to 5.4%. If the energy supply dislocations extend to next year, then the global economy could fall to 2% and inflation exceed 6%.

Even with the latest 2-week ceasefire, the IMF believes some damage is already done and the downside risk remains elevated.

Check IMF Growth Forecast 2026 Country-Wise: