India is expected to become the world’s fourth-largest economy by 2027, overtaking Japan, according to International Monetary Fund (IMF) projections that on Thursday laid out the Asian nations’ contrasting trajectories.

The IMF said Japan would remain the fourth-largest country by nominal gross domestic product this year, but in 2027 India is set to take its place, with a GDP reaching $4.52 trillion.

Japan is slated to slip to sixth place that year, falling behind both India and the United Kingdom, the projection showed.

India has shown strong growth in recent years despite global economic headwinds, with the IMF this week raising its forecasts for 2026 growth to hit 7.0 per cent.

Japan, by contrast, is plagued by an ageing population and other structural problems that have seen the Asian giant’s growth stagnate.

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

Releasing the IMF’s regional economic outlook for Asia-Pacific on Thursday, Asia Director Krishna Srinivasan said India entered the current energy price shock caused by the US-Israel war on Iran from a strong position.

“India entered this with very strong fundamentals,” he 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.”

Growth in Japan, by contrast, is projected to slow to 0.7pc in 2026, with the country hard hit by an increase in energy prices —and wider inflation— that has seen the Bank of Japan raise interest rates to their highest level in three decades.

The country, long haunted by deflation, has seen a sustained increase in consumer prices since the spring of 2022, and spiking energy prices from the Iran war have further fuelled those rises.

The fall of the yen, which hit its lowest level in 40 years against the dollar over the summer, is further driving up the cost of imports.

Japan’s ageing population is also weighing on economic activity.

The IMF’s Srinivasan said Japan’s economy was benefiting from the boom in artificial intelligence investments, but not as much as its regional neighbours.

The benchmark Nikkei index in Tokyo fell by nearly five per cent on Thursday, dragged down by a plunge in tech stocks amid doubts over the profitability of the AI sector.