S&P Global cuts India's GDP growth forecast to 6.7% for FY26, 6.8% for FY27

Don't want to miss the best from Business Standard?

S&P Global Ratings on Monday revised down its estimate for India's economic growth in the next two financial years as high interest rate and lower fiscal impulse temper urban demand.

In an update to its economic forecast for Asia-Pacific economies after US election results, the rating agency projected a 6.7 per cent GDP growth rate in 2025-26 financial year (April 2025 to March 2026) and 6.8 per cent in the following fiscal year, down from 6.9 per cent and 7 per cent, respectively in previous projections.

For FY25, S&P Global pegged GDP growth rate at 6.8 per cent.

"In India we see GDP growth easing to 6.8 per cent this fiscal year as high interest rates and a lower fiscal impulse temper urban demand. While purchasing manager indices (PMIs) remain convincingly in the expansion zone, other high-frequency indicators indicate some transitory softening of growth momentum due to the hit to the construction sector in the September quarter," it said.

The agency expects India's GDP to grow at 7 per cent in FY28.

S&P retained its growth projection for China at 4.8 per cent in 2024 but cut next year's forecast to 4.1 per cent from 4.3 per cent earlier and to 3.8 per cent in 2026 from the previous estimate of 4.5 per cent.

"The impending change in the US administration will be challenging for China and the rest of Asia-Pacific. US tariff increases have become more likely, especially on China, and possible changes in the US macro picture are leading to different interest rate expectations," said the report titled 'Economic Outlook Asia-Pacific Q1 2025: US Trade Shift Blurs The Horizon'.

Louis Kuijs, S&P Global Ratings Asia-Pacific Chief Economist, said rising risks are blurring the economic outlook for Asia-Pacific in the first quarter of 2025."While much of the region should be able to continue to grow solidly, central banks will probably remain cautious by not reducing their policy rates too fast."  China's stimulus measures should support growth, but S&P expected its economy to be hit by US trade tariffs on its exports.

The Asia-Pacific growth will be impeded by slower global demand and US trade policy. But lower interest rates and inflation should ease their drag on spending power.