India set to overtake Japan as world’s fourth-largest economy

India is expected to become the world’s fourth-largest economy in 2027, overtaking Japan as its economic growth continues to outpace that of its Asian rival, according to projections by the International Monetary Fund (IMF).

The IMF estimates that India’s nominal gross domestic product (GDP) will reach $4.52 trillion in 2027. Japan, which is projected to retain fourth place this year, is expected to fall to sixth position, behind both India and the United Kingdom.

The United States remains the world’s largest economy, followed by China and Germany.

India’s economic outlook has strengthened despite global uncertainty and rising energy prices. The IMF recently raised its growth forecast for the country to 7 per cent for 2026, reflecting its continued economic momentum.

Speaking during the release of the IMF’s regional economic outlook for Asia and the Pacific, the fund’s Asia director, Krishna Srinivasan, said India entered the current energy price shock with strong economic fundamentals. He pointed to its solid growth, fiscal discipline and substantial foreign exchange reserves as factors helping the country manage external pressures.

Japan, meanwhile, faces a more challenging economic environment. The IMF projects its economy will grow by just 0.7 per cent in 2026, as higher energy costs and persistent inflation weigh on activity.

The rise in global energy prices linked to the US-Israel war on Iran has added to Japan’s economic difficulties. The country relies heavily on imported energy, leaving its economy vulnerable to price increases in international markets.

A weaker yen has further raised the cost of imports. The currency fell to its lowest level against the US dollar in four decades over the summer, adding to inflationary pressures.

Japan is also struggling with an ageing population and long-standing structural problems that have limited economic growth. Consumer prices have risen persistently since the spring of 2022, marking a prolonged shift away from the deflation that had troubled the country for years.

Despite these challenges, Japan has benefited from increased investment in artificial intelligence. However, Srinivasan said the country was gaining less from the AI investment boom than some of its regional neighbours.

Japan’s benchmark Nikkei index fell nearly 5 per cent on Thursday as technology shares declined amid concerns about the profitability of artificial intelligence investments.

The contrasting outlooks underline the changing balance of economic power in Asia. India’s expanding economy is expected to strengthen its global position, while Japan faces mounting pressure from demographic challenges, energy costs and subdued growth.