India to remain fastest-growing economy through 2026: Morgan Stanley

Despite the global slowdown, India’s GDP is projected to grow 5.9% in 2025 and 6.4% in 2026, outpacing peers in the firm’s global coverage

July 1, 2025

India's GDP is projected to accelerate further to 6.4% in 2026, supported by strong domestic fundamentals and policy reforms

Global GDP growth is expected to slow from 3.5% in 2024 to 2.5% in 2025, mainly due to trade-related uncertainties led by US policy shifts

The US economy is forecast to grow at just 1.0% in both 2025 and 2026, with the eurozone and China also facing persistent headwinds

The Asia Pacific and emerging markets are expected to benefit from modest positive momentum, with India, Singapore, and the UAE standing out

India is expected to retain its position as the fastest-growing major economy through 2026, with Morgan Stanley’s Global Investment Committee (GIC) projecting real GDP growth of 5.9% in 2025 on a Q4-over-Q4 basis and 6.4% in 2026.

According to the global investment firm’s report, India stands out among all the countries in its coverage, thanks to continued reform momentum, a robust domestic demand base, and supportive macroeconomic conditions.

While India remains on a strong growth trajectory, the global outlook is more subdued. Morgan Stanley anticipates that global real GDP growth will decelerate sharply from 3.5% in 2024 to 2.5% in 2025. The firm attributes this slowdown to the potential impact of a trade shock, which is expected to affect multiple economies simultaneously and drag them below their potential output levels.

The report identifies US trade policy and the associated uncertainty as key contributors to the expected global deceleration. In the United States, GDP growth is forecast to drop from 2.5% in 2024 to just 1.0% in both 2025 and 2026. Similarly, the eurozone is projected to grow at a rate below 1% annually during the same period, held back by weak consumption and exports.

China’s growth is also expected to moderate, with Morgan Stanley forecasting real GDP growth of 4.0% in 2025 and 4.2% in 2026. Trade restrictions, particularly tariffs, are expected to shave off around 0.5 percentage points from China’s growth in 2025 compared to 2024, while concerns about deflation persist. In Japan, the anticipated global trade shock is likely to dampen exports, although consumer spending may help maintain steady nominal GDP growth.

Despite global headwinds, Morgan Stanley expects selective resilience across the Asia Pacific region and emerging markets through mid-2026. It maintains an overweight position on India, Singapore, and the United Arab Emirates (UAE), citing structural reforms and strong internal growth dynamics.

The report acknowledges that Indian equities are trading at high valuations relative to historical norms, but notes that consistent domestic retail and institutional inflows should continue to support these elevated levels.

Source: Mint

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