Considering US policy uncertainty, Moody’s Ratings on Tuesday lowered India’s growth forecast by 20 basis points to 6.3 per cent in 2025. However, it retained growth projection at 6.5 per cent for 2026. This compares with a 6.7 per cent growth in 2024. it expects the Reserve Bank of India to lower benchmark policy rates further to support growth.
In its Global Macro Outlook 2025-26 (May update), Moody’s said geopolitical stresses, like tension between India and Pakistan, also pose a potential downside risk to its baseline growth forecasts. Moody’s 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.
“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,” the agency said.
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 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, Moody’s 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 is clear that US trade strategy is still evolving. Except for China, which has implemented 125 per cent tariffs on most US imports and restrictions on rare earth exports to the US, most major trading partners have chosen not to retaliate so far. We believe that, overall, we are currently at peak effective tariff rates for the US and that they will be reduced in the coming months,” Moody’s said.
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.
“In April, financial market metrics reflected uncertainty-induced risk aversion and repricing of some financial assets. 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,” Moody’s added.