ADB cuts India FY25 GDP growth forecast to 6.5%, 7% in FY26 on weak demand

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The Asian Development Bank (ADB) on Wednesday lowered India's economic growth forecast to 6.5 per cent for the current financial year from its earlier estimate of 7 per cent due to lower-than-expected growth in private investment and housing demand.

The multilateral development bank has also lowered India's growth forecast for 2025-26 financial year.

Changes in US trade, fiscal, and immigration policies could dent growth and add to inflation in developing Asia and the Pacific, according to the latest edition of Asian Development Outlook (ADO).

The report also said Asia and the Pacific's economies are projected to grow 4.9 per cent in 2024, slightly below ADB's September forecast of 5 per cent.

"India's outlook is adjusted downward from 7 per cent to 6.5 per cent for this year, and from 7.2 per cent to 7 per cent next year, due to lower-than-expected growth in private investment and housing demand," ADB said.

Last week, the Reserve Bank also significantly lowered the growth projection for current fiscal year to 6.6 per cent from 7.2 per cent earlier and hiked the inflation forecast to 4.8 per cent in view of slowdown in economic activity as well as stubborn food prices.

India's GDP growth fell to a 7-quarter low of 5.4 per cent in July-September period of current financial year 2024-25 as against RBI's own projection of 7 per cent.

India's growth will remain robust, with the economy supported by higher agriculture output resulting from the summer (or kharif) crop season (which will also put downward pressure on food prices); continued resilience of the services sector; and lower-than-expected Brent crude prices in 2024 and 2025, ADB added.

It further said strong forward-looking and labour market indicators, such as PMI for industry and services, urban labour force participation and Reserve Bank of India's industrial outlook, suggest that economic momentum will recover in the coming quarters.

The report further said Southeast Asia's growth outlook has been raised to 4.7 per cent this year from a previous forecast of 4.5 per cent, driven by stronger manufacturing exports and public capital spending.

The forecast for next year is unchanged at 4.7 per cent. The Manila-headquartered bank has kept the growth forecast for China unchanged at 4.8 per cent this year and 4.5 per cent next year.

According to the report, Asia and the Pacific's economic growth will remain steady this year and next, but expected US policy changes under the incoming administration of President-elect Donald Trump are likely to affect the region's long-term outlook.