India to overtake Japan, become 4th-largest economy by 2027? What IMF’s latest projection reveals

India is set to overtake Japan and become the world’s fourth-largest economy by 2027, with its nominal gross domestic product (GDP) projected to reach $4.52 trillion, according to the International Monetary Fund (IMF). The projection, released on Thursday (Oct 15), highlights the contrasting economic outlooks of the two Asian nations. While India continues to record strong growth, Japan is grappling with an ageing population, rising prices and sluggish economic activity. Meanwhile, the United States remains the world’s largest economy, followed by China and Germany.

India’s growth outlook remains strong

The IMF has raised its forecast for India’s economic growth in 2026 to 7 per cent, citing the country’s strong fundamentals as it navigates global economic uncertainty.

Speaking at the release of the IMF’s regional economic outlook for Asia-Pacific, the fund’s Asia Director, Krishna Srinivasan, said India was relatively well placed to absorb the impact of the energy price shock triggered by the US-Israel war on Iran.

"India entered this with very strong fundamentals," Srinivasan said. "Growth was strong, fiscal prudence was pretty much enshrined, they had lots of reserves and so on. And so in that context, they have responded well to the shock."

India’s projected rise would see Japan slip to sixth place in 2027, with the United Kingdom also expected to move ahead of the Japanese economy.

Japan faces inflation and structural challenges

Japan’s economy is projected to grow by just 0.7 per cent in 2026. Higher energy costs and broader inflation have added to the challenges facing the country, where consumer prices have risen steadily since the spring of 2022 after years of deflation.

The surge in energy prices linked to the Iran war has intensified inflationary pressures, prompting the Bank of Japan to raise interest rates to their highest level in three decades.

A weakening yen has compounded the problem by making imports more expensive. The currency hit a 40-year low against the dollar over the summer, further squeezing households and businesses.

Japan’s ageing population is another constraint on economic activity, limiting its growth prospects.

Srinivasan said Japan was benefiting from increased investment in artificial intelligence, although the gains were less pronounced than in some regional economies.

The outlook for the technology sector also came under scrutiny on Thursday, when Tokyo’s benchmark Nikkei index fell nearly 5 per cent amid a sharp sell-off in technology stocks and doubts about the profitability of AI investments.