S&P Global lowers India GDP growth forecast for FY26 and FY27

The global ratings agency S&P Global on November 25 updated its economic forecasts for Asia-Pacific economies after US election results as per which it has lowered its projection for India’s GDP growth to 6.7% for FY26 and 6.8% for FY27.

S&P Global has retained its outlook at 6.8% GDP growth in FY25. “In India we see GDP growth easing to 6.8% 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,” the ratings agency said in its report.

The agency expects India’s GDP to grow at 7% in FY28, it said.

The latest S&P report added that persistent food inflation is delaying rate cuts by the Reserve Bank of India (RBI). The ratings agency expects the central bank to cut only once in the current fiscal year (ending March 31).

“Consumer inflation is fueled by supply shocks in agriculture, which have driven up food prices. These shocks are linked to changing rainfall patterns and climate change-driven heatwaves. Traditionally volatile and hard to predict, food inflation has become even more capricious lately.”

S&P added that the RBI cannot ignore food inflation when considering rate cuts. “Food items make up nearly 46% of the inflation basket and persistently high food inflation raises inflationary expectations.”

The report also pointed out that 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.

According to the agency, 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. And risks have gone up.

“While China’s stimulus measures should support growth, we expect its economy to be hit by US trade tariffs on its exports. In all, we now project 4.1% GDP growth in 2025 and 3.8% in 2026; that’s 0.2 percentage point (ppt) and 0.7 ppt lower than our forecast in September,” it said.

It added that 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. And in emerging markets, robust domestic demand growth is buoying GDP growth, the report noted.