SDG 8: Decent Work and Economic Growth | SDG 17: Partnerships for the Goals
Ministry of Finance | Reserve Bank of India | NITI Aayog
The IMF January 2026 World Economic Outlook (WEO) update projects global growth to remain resilient at 3.3% in 2026 and 3.2% in 2027, following a steady outturn in 2025. This stability results from a balance of divergent forces: headwinds from shifting trade policies are being offset by surging investment in technology, particularly Artificial Intelligence (AI), alongside broadly accommodative financial conditions and fiscal support. Global headline inflation is expected to decline from 4.1% in 2025 to 3.8% in 2026 and 3.4% in 2027, though return-to-target speeds vary significantly across major economies.
Key Drivers and Market Dynamics
AI-Driven Momentum: Surging investment in AI and information technology is a primary tailwind, particularly in North America and Asia. Tech-related exports have remained robust, offsetting slowing momentum in other product categories.
Divergent Equity Markets: Stock prices of major technology companies, especially the “Magnificent 7”, have pulled significantly ahead of the broader market. However, market participants are increasingly focused on whether these firms can deliver the sustained AI revenue required to justify lofty valuations.
Fiscal Stimulus: Near-term fiscal policy in advanced economies—notably the United States, Japan, and Germany—is expected to be stimulative. In the U.S., tax incentives under the One Big Beautiful Bill Act of 2025 are projected to provide a near-term boost to corporate investment.
Stabilizing Trade Tensions: While trade tensions remain subject to flare-ups, a recent China-US truce has reduced bilateral tariffs and paused export controls on semiconductors and rare earth minerals until late 2026.
Growth Outlook for Key Economies (2026 Projections)
United States: Projected to expand by 2.4%, supported by a lower policy rate and fiscal stimulus, even as technology-driven momentum begins to moderate.
China: Growth revised upward to 4.5%, reflecting the impact of domestic stimulus measures and lower effective US tariff rates resulting from the trade truce.
India: Growth is projected to moderate to 6.4% as temporary cyclical factors wane, following a strong 7.3% outturn in 2025.
Euro Area: Growth is expected to remain subdued at 1.3%, reflecting structural headwinds and a lower benefit from the recent technology investment boost compared to other regions.
What is the ‘Magnificent 7’ and why is it a focal point for global financial stability? The ‘Magnificent 7’ is an equal-dollar-weighted equity benchmark composed of seven high-impact technology firms: Apple, Microsoft, Amazon, Alphabet, Tesla, Nvidia, and Meta. They are critical to global stability because they account for a sizable share of global stock market capitalization and drive a significant portion of corporate capital expenditure growth. Their dominance creates concentration risk; should expectations for AI-driven productivity gains disappoint, a sharp correction in their valuations could spread abruptly through financial markets, eroding household wealth and global investment.
Policy Relevance
Policymakers must navigate a landscape of high uncertainty, balancing the need for growth with the necessity of fiscal and price stability.
Strategic Impact:
Maintaining Momentum: While growth is projected to moderate, India remains one of the world’s fastest-growing major economies, supported by strong internal demand and ongoing reform efforts.
Inflation Management: India is expected to see inflation return to target levels in 2026 after a decline driven by subdued food prices.
Leveraging Tech Exports: The brisk expansion in technology-related exports from Asia provides a continued opportunity for India to integrate more deeply into global high-tech supply chains.
Fiscal Consolidation: The IMF emphasizes the importance of restoring fiscal buffers and putting public debt on a downward path to ensure long-term stability.
Follow the full news here: WORLD ECONOMIC OUTLOOK 2026 JAN