Goldman Sachs has said that India’s GDP growth forecast will decelerate to 6.3 percent year-on-year (YoY) in 2025. However, the country will be relatively insulated from the global economic shocks expected from a potential trade war between the United States and China.
In its report, Goldman Sachs said that despite the ongoing global uncertainties, India’s long-term structural growth prospects remain robust. “In 2025, we believe India will likely be a relatively insulated economy from global shocks emanating out of a potential trade war between US and China,” said the report.
It attributed the slowdown to continued fiscal consolidation and tighter credit growth due to macro-prudential measures taken by the Reserve Bank of India (RBI).
As per the report, the RBI’s monetary policy is expected to remain cautious in 2025.
“Though India’s strong long-term structural growth story remains intact, we forecast GDP growth to decelerate to 6.3 percent YoY in CY25, on continued fiscal consolidation and slower credit growth on macro-prudential tightening by the RBI,” Goldman Sachs said in its note.
Despite calls for more accommodative monetary conditions to support growth, the RBI is likely to proceed carefully, given the strong US dollar scenario and global trade uncertainties.
Retail loan growth may remain subdued even with lower interest rates because of the ongoing macro-prudential tightening.
Although inflation is projected to align with the RBI’s target next year, the rate-cut cycle is expected to be limited. RBI is likely to aim for a balanced approach, keeping monetary policy close to the nominal neutral rate, estimated at 6 percent.
“While the cyclical growth slowdown calls for easier monetary conditions in our view, the stronger dollar scenario will mean the RBI will likely proceed cautiously,” Goldman Sachs said.
The report suggests a 25-basis-point repo rate cut in February 2025, followed by another 25-basis-point cut in April. The RBI is also expected to maintain a liquidity surplus, allowing overnight inter-bank rates to fall to 5.75 percent, effectively delivering a 75-basis-point easing from the current levels of 6.50 percent.
India’s economy is anticipated to maintain stability amid global trade tensions showcasing its resilience in the face of external shocks, it added.
Goldman Sachs projects headline inflation to average 4.2 percent YoY in 2025 down from over 7 percent in 2024. Food inflation is expected to fall to 4.6 percent, supported by better rainfall and improved summer crop sowing, which could lead to a more robust harvest, it said.
“Core inflation has made steady progress lower from 5.0 percent YoY (average) in CY23 to 3.5 percent YoY in CY24. We forecast a continued decline in headline inflation towards the RBI’s target of 4 percent in CY25 as we expect nearly 2.5 percentage points lower food inflation next year — adequate rainfall and good sowing of the summer crop point toward a better broad-based crop harvest,” Goldman Sachs said.