India is expected to become the world’s fourth-largest economy by 2027, overtaking Japan, according to International Monetary Fund projections released on Thursday. The IMF said Japan would hold fourth place by nominal gross domestic product this year. In 2027, however, India is set to take that position, with its GDP reaching $4.52 trillion.
Japan is expected to slip to sixth place that year, falling behind both India and the United Kingdom. The United States remains the largest economy, followed by China and Germany. The projections were laid out in the IMF’s regional economic outlook for Asia-Pacific, and the fund this week raised its 2026 growth forecast for India to 7.0 percent.
India’s strong position amid an energy price shock
Asia Director Krishna Srinivasan said India entered the energy price shock caused by the US-Israel war on Iran from a position of strength. “India entered this with very strong fundamentals,” he said.
He pointed to strong growth, prudent fiscal management and substantial reserves, saying these factors helped India respond well to the shock.
Japan’s slowdown linked to inflation and an ageing population
Japan’s growth is projected to slow to 0.7 percent in 2026. The country is being hit hard by higher energy prices and broader inflation, which have prompted the Bank of Japan to raise interest rates to their highest level in three decades.
Japan, long troubled by deflation, has seen consumer prices rise steadily since the spring of 2022, and the Iran war has added to those increases. The yen fell to its lowest level against the dollar in 40 years over the summer, making imports more expensive. The country’s ageing population is also weighing on economic activity.
Tech stock losses weigh on Tokyo markets
Srinivasan said Japan was benefiting from the boom in artificial intelligence investment, but not as much as its regional neighbours. On Thursday, the benchmark Nikkei index in Tokyo fell by nearly five percent. The drop was driven by a plunge in technology stocks, amid doubts over the profitability of the AI sector.
