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Informist, Wednesday, May 21, 2025

 

NEW DELHI – Although lingering tariff uncertainty has been weighing on the growth momentum of Asian economies, Morgan Stanley continues to see India as "best placed" given supportive policy easing and its low ratio of goods exports to GDP. However, the investment bank projected India's GDP to grow 6.4% in 2025-26 (Apr-Mar), 10 basis points lower than the Reserve Bank of India's projection of 6.5%. 

 

"India's economy is also regaining momentum, supported by an improvement in government spending and strength in services exports," Morgan Stanley said in its Asia Economics Mid-Year Outlook report released Wednesday. For each of the quarters of FY26, it projected India's GDP to grow 6.4%, barring Oct-Dec, when growth is pegged 10 bps higher at 6.5%. The RBI sees India's Apr-Jun GDP at 6.5%, Jul-Sept at 6.7%, Oct-Dec at 6.6%, and Jan-Mar at 6.3%. 

 

According to Morgan Stanley, economies that enjoy a stronger contribution to GDP from exports will face greater damage to growth due to heightened policy uncertainty from the tariff war triggered by US President Donald Trump's reciprocal tariffs. As per its research, India has the lowest ratio of merchandise exports to GDP among other Asian economies at 12%. Of this, only 2% comes from goods exported to the US, it added.    

 

Even if the contribution to the GDP is low, the US tariffs pose risks to India as the country is India's top export destination with a share of 19% in total outbound shipments in FY25. A bilateral trade agreement with Washington is New Delhi's hope to avoid Trump's proposed reciprocal tariff of 26% on Indian goods, which is likely to be back in place from Jul. 9. 

 

"Within Asia, we are still more constructive on economies less exposed to trade with domestic demand tailwinds like India, Australia and Japan," the investment bank said. It projected Asia's GDP growth at 4.2% in FY26, 10 bps lower than FY25. Within Asian economies, it projected China's economy to grow 4.2% in FY26, 30 bps lower than FY25 and 80 bps lower than FY24. 

 

Morgan Stanley projected India's FY25 GDP growth to be 6.2%, with Jan-Mar at 5.9%. The statistics ministry's second advance estimate of 6.5% GDP growth in FY25 implies the Indian economy's growth rate will surge to a four-quarter high of 7.6% in Jan-Mar. The government will detail data for Jan-Mar and provisional estimates for FY25 at the end of this month. 

 

"With growth decelerating and disinflationary pressures intensifying, we expect policymakers in Asia to step up policy easing," the bank said in the report. "For China, we expect fiscal policy to do the heavy lifting, while for the rest of Asia we believe monetary easing will likely dominate the policy mix instead."  

 

In the latest meeting of the RBI's Monetary Policy Committee in April, the rate-setting panel had unanimously decided to cut the policy repo rate by 25 bps to 6.0% to support domestic growth. The panel also voted to change the policy stance to 'accommodative' from the 'neutral' adopted in October. According to the investment bank, slower growth and benign inflation, driven by lower food inflation and lower oil prices, should allow the central bank to respond with a deeper easing cycle. "We now build in two more cuts in 2025, bringing terminal rate to 5.5%," it said. 

 

Morgan Stanley projected India's inflation to average 4.2% in FY26, 20 bps higher than the central bank's view. For Apr-Jun, it projected CPI inflation at 4.7%, sharply higher than RBI's projection of 3.6%. "In India, we believe above-normal rainfall should keep food inflation on a lower trajectory, which alongside lower oil prices would ensure headline inflation remains below the 4% mid-point range of RBI's target range," it said. 

 

Morgan Stanley projected Asia's headline inflation for FY26 at 1.6%, with Apr-Jun at 1.8%.  End

 

Reported by Priyasmita Dutta

Edited by Tanima Banerjee

 

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