The International Monetary Fund (IMF) predicts that India will rise to become the world's fourth-largest economy by 2027, surpassing Japan and the United Kingdom. Meanwhile, Japan's economy is expected to drop to sixth place amid challenges from an aging population, a weaker yen, and rising energy costs. India continues to grow robustly, with the IMF raising its 2027 economic growth forecast for India to 7%.
The International Monetary Fund, or IMF, forecasts that India will become the world's fourth-largest economy by 2027, overtaking Japan, which is expected to fall to sixth place, according to the October 2026 World Economic Outlook report. This reflects the clearly divergent economic trajectories of these two Asian countries.
The IMF states that in 2026, Japan will remain the world's fourth-largest economy with a gross domestic product (GDP) of about $4.34 trillion, while the United Kingdom's GDP is around $4.27 trillion, and India's is approximately $4.06 trillion.
However, in 2027, India is expected to move up to fourth place with a GDP of about $4.52 trillion, followed by the United Kingdom at $4.49 trillion. Japan is projected to fall to sixth place with a GDP near $4.47 trillion.
Previously, forecasts indicated that the United Kingdom would surpass Japan in 2029, but recent trends suggest this may happen sooner. India was once expected to overtake Japan as early as 2025, but that prediction did not materialize.
Japan had been the world's third-largest economy for about a decade before being overtaken by Germany in 2023. Currently, it faces pressures from an aging population, sluggish economic growth, a weakening yen against the U.S. dollar, and rising living costs, all of which have impacted consumer purchasing power.
In contrast, India has experienced strong economic growth over recent years despite global economic pressures. The IMF has raised India's growth forecast for 2026 to 7% in its latest report.
Krishna Srinivasan, the IMF's Director for Asia and the Pacific, stated that India is entering a period of energy price volatility due to conflicts between the United States, Israel, and Iran. However, India's strong economic fundamentals—including robust growth, fiscal discipline, and substantial reserves—enable the country to effectively manage these impacts.
Japan's economy is expected to grow only 0.7% in 2026, heavily affected by rising energy prices and inflation. This has led the Bank of Japan to raise interest rates to the highest level in 30 years.
Japan, which has long experienced deflation, began seeing continuous rises in consumer prices from spring 2022. The surge in energy prices due to the Iran conflict has intensified inflationary pressures. Additionally, the yen weakened to a 40-year low against the U.S. dollar during the past summer, increasing import costs further.
The aging population structure is another factor restraining Japan's economic activity. Although Srinivasan noted that investment in artificial intelligence (AI) is supporting Japan's economy, the benefits are still less than those seen in other countries in the region.
These pressures have coincided with financial market volatility. Tokyo's Nikkei stock index fell nearly 5% on Thursday, 15 October, after technology stocks declined amid concerns over AI business profitability.
However, the IMF report notes that Japan's economy expanded better than previously expected in the second quarter of this year, with government support measures helping to partially offset the impact of higher energy prices.
The October 2026 World Economic Outlook report, titled "Resilience Under Pressure, Urgent Choices," forecasts global inflation at 4.7% in 2026, driven mainly by higher energy and food prices. The global economy is expected to grow by 3.1% this year and 3.4% in 2027.
Denise Igan, a senior official in the IMF's research department, said this growth is likely to be unevenly distributed. Investment in AI and trade conditions favorable to some countries may widen economic disparities between nations.
Igan also warned that while AI offers economic opportunities, it carries risks, especially if expectations of benefits are overly optimistic. She emphasized that countries must strengthen energy security, prepare for AI adoption, and maintain free trade systems and international cooperation in the long term.
Source: AFP /JAPAN TIMES