Moody's cuts India's GDP projection to 6.3% for 2025 amid trade policy uncertainties, geopolitical stresses

06 May 2025 Evaluate

Moody's Ratings in its Global Macro Outlook 2025-26 (May update) has cut India's Gross Domestic Product (GDP) growth projection to 6.3 per cent for 2025 calendar year, from 6.5 per cent, and said that economies globally will see a slowdown on account of heightened US policy uncertainty and trade restrictions. Besides, it retained its 2026 GDP forecast at 6.5 per cent. This compares with a 6.7 per cent growth in 2024. It noted that geopolitical stresses, like tension between India and Pakistan, also have a potential downside risk to its baseline growth forecasts. It said costs to investors and businesses are likely to rise as they factor in new geopolitical configurations when deciding where to invest, expand, and/or source goods. It further expects the Reserve Bank of India to lower benchmark policy rates further to support growth.

It said ‘Economic growth was already set to slow this year back to its potential rate. We lowered our global growth projections for 2025 and 2026 further on account of the policy shifts and more intense policy uncertainty than we had previously expected, especially in the largest two economies, the US and China’. Stating that policy uncertainty is further slowing growth in 2025, Moody's said it is likely to take a toll on consumer, business, and financial activity. Despite a pause and reduction in some tariffs, policy uncertainty and trade tensions, especially between the US and China, are likely to dampen global trade and investment with consequences across the G-20.

Moody's has lowered GDP growth projections for the US to 1 per cent in 2025 and 1.5 per cent in 2026 from 2 per cent and 1.8 per cent. That compares with growth of 2.8 per cent in 2024. For China, it expects growth to be 3.8 per cent in 2025 and 3.9 per cent in 2026, lower than 5 per cent in 2024. It said that in addition to trade policy uncertainties, Moody's baseline forecasts incorporate a degree of financial market volatility and continued political tensions in multiple geographies. Geopolitical stresses are another potential downside risk to Moody's baseline forecasts. In recent days, tensions have flared up between India and Pakistan in South Asia and China and the Philippines in the South China Sea. These join unresolved wars in Russia and Ukraine as well as the conflict in the Middle East.

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