May 7, 2025
The ratings agency flagged escalating geopolitical tensions between India and Pakistan as a key downside risk to growth
Despite the cut for 2025, Moody’s retained its forecast of 6.5% growth in 2026, following an estimated 6.7% expansion in 2024
A broader global slowdown is anticipated due to US policy uncertainty, trade tensions, and financial market volatility
Global GDP projections have also been downgraded, with the US expected to grow just 1% and China 3.8% in 2025
Moody’s Ratings lowered India’s GDP growth forecast for 2025 to 6.3%, down from its earlier projection of 6.5%, citing a rise in global policy uncertainty and intensifying trade restrictions. The agency identified geopolitical tensions and global macroeconomic shifts as significant contributors to this downward revision.
The revised forecast comes amid broader concerns about escalating tensions between India and Pakistan, which Moody’s sees as a potential drag on the country’s economic momentum. The agency noted that the April 22 terrorist attack in Pahalgam, Jammu & Kashmir, which left 26 tourists dead — has further aggravated cross-border tensions. Indian authorities have linked the incident to five identified terrorists, including three from Pakistan, intensifying regional instability.
Moody’s has, however, maintained its 2026 growth forecast for India at 6.5%, supported by expectations of monetary easing and domestic resilience. For 2024, the agency continues to project a 6.7% expansion.
In its Global Macro Outlook 2025–26 (May Update), Moody’s observed that global growth is being hampered by heightened US policy shifts, trade frictions, and financial market volatility. It highlighted that investors and businesses are now recalibrating their global strategies in response to changing geopolitical dynamics—a trend likely to elevate costs and curb investment sentiment.
Moody’s also anticipates that the Reserve Bank of India will cut benchmark interest rates in 2025 to stimulate growth, especially as external risks persist. The broader global outlook is also under pressure, with the agency cutting the US growth forecast to 1% in 2025 (from 2%) and 1.5% in 2026. China’s economic growth is also expected to slow to 3.8% in 2025 and 3.9% in 2026, a marked decline from its 5% expansion in 2024.
While Moody’s acknowledged some easing in tariff measures, it warned that policy ambiguity and persistent trade tensions, particularly between the US and China, will likely suppress global trade volumes and investment activity, affecting G-20 nations, including India.
The agency added that unresolved international conflicts—from Ukraine to the Middle East, rising maritime tensions in the South China Sea, and ongoing financial market turbulence—may lead to tighter liquidity conditions and higher capital costs, further threatening economic stability across emerging and advanced markets alike.
Source: Economic Times