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Informist, Friday, May. 2, 2025

 

NEW DELHI – S&P Global Ratings has cut its forecast for India's GDP growth in the current financial year by 20 basis points to 6.3%, with growth in 2026-27 (Apr-Mar) also seen at a slower pace of 6.5% compared to the previous projection of 6.8% due to the "seismic and uncertain shift" in US trade policy, which has increased market volatility and "raised the spectre of a global economic slowdown".

 

"Our top macro risk in the next 12 months is that higher tariffs, uncertainty, and financial market turbulence will lead to a sharp contraction in the real economy, in the US and elsewhere. So far, the negative effects have mostly manifested in soft variables (surveys and confidence indicators) and nominal variables," S&P said in a report on Thursday. "Escalation to a full-fledged trade war across an increasing number of economies, including reciprocal tariff hikes and an extension to tariffs on services, would exacerbate the factors contributing to these risks. This will come into focus when the 90-day pause on tariffs expires in early July."

 

The US growth forecast for 2025 was cut by 50 bps to 1.5%, while in 2026, the world's largest economy is seen expanding 1.7% compared to 1.9% predicted in March. Meanwhile, the downward revision in the growth forecasts for China were the largest. In 2025, the world's second-largest economy is now expected to grow 3.5%, down from 4.1?rlier, while the projection for 2026 was cut by 80 bps to 3.0%.

 

S&P's latest growth forecast for India for the current financial year is 20 bps lower than the Reserve Bank of India's estimate of 6.5%, with the Indian central bank having cut its own estimate by 20 bps in early April. Most economists see the RBI's figure as being optimistic, with growth this year widely seen declining closer to 6.0% from the statistics ministry's second advance estimate of 6.5% for FY25.

 

Beyond FY27, S&P--which has a BBB- rating on India with a positive outlook--sees the economy growing at a faster rate: 7.0% in FY28 and 6.8% in FY29. Inflation, meanwhile, is seen stabilising just over the RBI's medium-term target of 4.0% and averaging 4.3% in FY26, 4.4% in FY27, and 4.5% in both FY28 and FY29. The RBI has forecast average CPI inflation to ease to 4.0% in the current financial year.

 

In terms of monetary policy, S&P sees the RBI cutting the repo rate to 5.50% by March, translating into 50 bps of rate cuts over the remainder of FY26. After that, one rate cut of 25 bps is seen in FY27 before the central bank stands pat. On the exchange rate front, the rupee is seen depreciating steadily to end FY26 at 88 per dollar and close at 90 per dollar by the end of FY29.  End

 

US$1 = INR 84.11

 

Reported by Siddharth Upasani

Edited by Avishek Dutta

 

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