Global economic growth is now an emerging economy race, and India is leading for now

Emerging markets are now the world economy’s main character, as per the IMF’s latest World Economic Outlook. Emerging and developing Asia is expected to grow 5.1 per cent in 2026, while sub-Saharan Africa is projected to expand by 4.5 per cent. Latin America and the Caribbean, by contrast, are expected to grow only 2.3 per cent, and emerging and developing Europe just 1.7 per cent.

Globally, emerging market and developing economies are projected to grow 3.7 per cent in 2026 and 4.4 per cent in 2027, compared with 2.1 per cent and 1.8 per cent for advanced economies.

India remains the forerunner among large emerging economies, with the IMF projecting 7 per cent growth in FY27 and FY28. China is expected to grow 4.5 per cent in 2026 before slowing to 4 per cent in 2027, as higher oil prices, persistent uncertainty and structural headwinds weigh on activity. All this when compared to the larger global growth, which, the IMF says, will slow from 3.5 per cent in 2025 to 3.1 per cent in 2026, before recovering to 3.4 per cent in 2027.

So, India is still running, China is still large, but neither can ignore the elephant in the room—the bloated energy bill.

Crude oil damping the vibe?

In the latest report, IMF assumes the Strait of Hormuz will reopen gradually from March 2027, with conditions broadly normalising only by October 2027.

Its baseline projects the average oil-price index at 96 dollars a barrel in 2026, 16 per cent above the April forecast and 41 per cent above 2025 levels.

That is especially rough for energy-importing emerging economies, where higher fuel costs widen current-account deficits, weaken currencies, increase external financing needs and feed into inflation.

The IMF projects emerging-market inflation at 5.7 per cent in 2026, up from 5.2 per cent in 2025, before easing to 5.1 per cent in 2027.

AI boom or Judgment Day scene?

According to the IMF, the AI investment boom is creating a new hierarchy of winners. Taiwan and South Korea account for 62 per cent of net trade in AI-related computing hardware, while China and the United States accounted for more than 75 per cent of net imports of this hardware in 2025.

Southeast Asian manufacturing hubs such as Malaysia, Thailand, Vietnam, Singapore and the Philippines can benefit through supply chains, data centres and auxiliary services.

But the IMF stresses one thing as per its report: AI is not automatically democratic. Countries outside the technology value chain may get little immediate growth upside, while still facing the downside risk of capital-market corrections and higher energy demand.

So, electricity grids, skills and reliable data infrastructure will still determine how AI will be incorporated into such economies.

The whale of a debt

Now comes the part that many conveniently ignore—global debt. IMF projects public debt in emerging market and developing economies to rise from 74 per cent of GDP in 2025 to 84 per cent by 2031.

Banks’ holdings of government securities have risen sharply since the early 2000s—by about 25 per cent in emerging market economies and 45 per cent in low-income countries. Government borrowing outdebting private credit is therefore a concern.

For emerging economies, the IMF suggests targeted support for vulnerable households and not blanket fuel subsidies. Other measures include credible fiscal plans, stronger tax systems, renewable energy,and investment in skills, digital networks and resilient supply chains.

The numbers by IMF make one thing clear: emerging economies are what determine global growth, but the coming year will be a balancing act between oil shocks and AI opportunity, fiscal stress, and sustainable development.