Moody’s Cuts India’s 2025 GDP Forecast To 6.3%

Global Policy Uncertainty and Trade Tensions Weigh on Economic Outlook

Credit rating agency Moody’s has revised its economic outlook for India, lowering the country’s GDP growth forecast for the calendar year 2025 to 6.3%, down from its earlier estimate of 6.5%. The downward revision reflects rising global risks, particularly policy uncertainty in major economies like the United States and China, along with intensifying geopolitical tensions.

India’s Growth Outlook: Slower but Stable

Despite the downward revision, Moody’s still sees India as one of the fastest-growing major economies. The agency expects India to grow 6.7% in 2024, followed by 6.3% in 2025, and a recovery to 6.5% in 2026.

According to Moody’s, economic growth in India was already projected to slow in 2025 to match its potential rate. However, worsening global conditions are likely to add more pressure.

RBI May Lower Rates to Support Growth

To support the economy during this expected slowdown, Moody’s believes the Reserve Bank of India (RBI) may further reduce benchmark policy rates. Lower interest rates typically help boost consumption and investments, which can fuel economic recovery.

Geopolitical and Financial Risks Could Hurt Investor Sentiment

India-Pakistan Tensions Pose a Risk

Moody’s highlighted that rising geopolitical tensions in South Asia, especially between India and Pakistan, could become a major downside risk. These tensions could disrupt trade, increase uncertainty for investors, and slow capital inflows.

Changing Global Alliances to Impact Investments

As global trade dynamics shift, businesses are now forced to reassess where they produce goods and invest capital. Moody’s noted that new geopolitical alignments and uncertainty over future trade policies are increasing operational costs for investors and multinational companies.

Global Growth Revised Downward

U.S. and China to Grow Slower in 2025 and 2026

Moody’s also downgraded growth expectations for the world’s two largest economies:

United States: GDP growth is now expected at 1% in 2025 (down from 2%) and 1.5% in 2026 (down from 1.8%). This follows stronger growth of 2.8% in 2024.

China: Economic growth is forecasted to slow to 3.8% in 2025 and 3.9% in 2026, compared to 5% in 2024.

Trade Wars and Tariffs Add More Uncertainty

Moody’s observed that trade tensions remain a major drag on global investment and economic momentum. While the U.S. and China have taken steps like removing or reducing some tariffs, ongoing policy unpredictability continues to impact global trade flows.

It also pointed out that China has imposed up to 125% tariffs on U.S. goods and restricted exports of rare earth elements—key components in tech manufacturing. However, other nations have refrained from retaliating, possibly signaling a future softening in global trade policy.

Financial Market Volatility Is a Growing Concern

In its May 2025 Global Macro Outlook, Moody’s added that frequent financial market shocks—caused by risk aversion and investor uncertainty—are pushing up the cost of capital and reducing liquidity. This could weaken economic resilience and hurt long-term growth potential, especially in emerging markets like India.

Conclusion

Moody’s latest outlook paints a cautious picture for the global and Indian economy in 2025. While India remains relatively strong compared to other major economies, the impact of geopolitical risk, trade uncertainty, and financial market volatility may pose significant challenges in the year ahead. Policymakers, especially the RBI, will play a crucial role in navigating these complex dynamics to maintain economic momentum.