Amid Trade Uncertainties, Moody's Downgrades India's Growth Outlook For 2025 To 6.3 Per Cent

The agency expects the RBI to continue lowering benchmark policy rates in the months ahead in a bid to stimulate domestic demand and offset the impact of global slowdown pressures.

Credit rating agency Moody’s revised its growth forecast for India in 2025, scaling it down to 6.3 per cent from the earlier estimate of 6.5 per cent. The downgrade comes as part of Moody’s latest Global Macro Outlook 2025-26 (May update), which cited rising global policy uncertainty, tightening trade regulations, and ongoing geopolitical risks as major headwinds for economic expansion worldwide.

The agency maintained India’s GDP growth forecast for 2026 at 6.5 per cent, in line with its earlier projection, but the cut in next year’s estimate comes against the backdrop of a more modest 6.7 per cent growth anticipated for 2024, reported PTI.

“Economic growth was already set to slow this year back to its potential rate,” Moody’s stated, while noting that trade tensions and an evolving global policy environment are now contributing to a more cautious growth trajectory.

RBI Expected To Aid Growth With Rate Cuts

The agency expects the Reserve Bank of India (RBI) to continue lowering benchmark policy rates in the months ahead in a bid to stimulate domestic demand and offset the impact of global slowdown pressures. “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,” Moody’s added.

Moody’s expressed concern that ongoing policy uncertainty may affect both consumer and business sentiment, thereby stalling financial activity. “Policy uncertainty is further slowing growth in 2025,” it said. The report noted that despite some easing of tariffs, trade tensions remain elevated, especially between the US and China. This, Moody’s warned, could weaken global trade flows and capital investment across G-20 economies.

Global Growth Under Strain 

The revised global forecast included a reduction in US GDP growth to 1 per cent in 2025 and 1.5 per cent in 2026, compared to earlier estimates of 2 per cent and 1.8 per cent, respectively. The US economy  expanded by 2.8 per cent in 2024. China’s growth is now expected to slow to 3.8 per cent in 2025 and 3.9 per cent in 2026, down from 5 per cent in 2024.

While trade policies remain a major source of concern, Moody’s also pointed to the heightened volatility in financial markets and persistent political instability in various regions. “In April, financial market metrics reflected uncertainty-induced risk aversion and repricing of some financial assets,” the agency noted. It warned that “frequent bouts of intense financial market volatility that tighten liquidity and significantly raise the cost of capital could erode economic resilience, posing risks to growth.”

Geopolitical events have also contributed to Moody’s cautious outlook. The agency flagged recent escalations between India and Pakistan, as well as tensions in the South China Sea involving China and the Philippines. These developments join the ongoing wars in Ukraine and the Middle East in increasing global instability. Highlighting a recent incident in India, the agency noted: “On April 22, terrorists opened fire in Pahalgam, Jammu & Kashmir, killing 26 tourists.” Indian authorities have identified five individuals—three of them Pakistani nationals—as suspects and have vowed to take strong action.

“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,” Moody’s concluded.