Moody’s Cuts India’s 2025 Growth Forecast Amid Geopolitical Tensions and Global Uncertainty

New Delhi | May 6 

In a recent revision, Moody’s Ratings has cut its growth forecast for India in 2025 to 6.3%, down from the 6.7% predicted earlier. The global ratings agency cited several factors contributing to this downgrade, with geopolitical tensions and uncertain global economic policies being the key risks impacting the outlook.

Moody’s Ratings recently revised its growth forecast for India, predicting a slowdown to 6.3% in 2025, down from 6.7% in the previous year. This decision aligns with similar moves by both the International Monetary Fund (IMF) and the World Bank, which also adjusted their growth estimates for India. These changes highlight the growing concerns over both internal and external challenges that may affect the Indian economy in the coming years.

Global Economic Uncertainty

In its Global Macro Outlook for May, Moody’s Ratings highlighted the ongoing slowdown in global economic activity and the rising geopolitical tensions that are expected to negatively impact consumer, business, and financial activities worldwide. Key uncertainties, particularly between the United States and China, are expected to stifle global trade and investment. Moody’s indicated that the ripple effect of these tensions will extend across the G20 nations, including India.

Additionally, geopolitical risks were flagged as significant downside factors in the agency’s forecast. Moody’s pointed to the ongoing tensions between India and Pakistan, as well as the South China Sea disputes involving China and the Philippines. These regional conflicts are expected to strain the global economic environment, creating added risks for countries like India.

Geopolitical Risks Impacting India’s Growth

Moody’s Ratings noted that the recent escalation of tensions between India and Pakistan has been a critical factor in its updated growth outlook for India. The terrorist attack on April 21, 2025, in Pahalgam, Kashmir, which killed 26 tourists, has heightened security concerns. The attack, carried out by Pakistani nationals, has exacerbated political and security risks, affecting both business sentiment and investment.

This geopolitical tension is further compounded by global instability, including the ongoing Russia-Ukraine war and the volatile situation in the Middle East. These geopolitical stresses are creating an unpredictable environment for trade and investment, with rising costs for businesses and potential delays in international flows of goods and capital.

Inflation and Monetary Policy Outlook

Despite revising its growth forecast downward, Moody’s Ratings remains optimistic about India’s inflation rate, projecting it to remain stable at 4% in 2025 and 4.3% in 2026. The agency observed that the Federal Reserve’s policy changes no longer have as significant an impact on emerging markets, including India, as they did in the past.

In response to the revised growth forecast, Moody’s expects the Reserve Bank of India (RBI) to continue lowering interest rates in an effort to stimulate economic growth. The RBI recently cut the key repo rate by 25 basis points to 6%, signaling its commitment to supporting economic activity amid global challenges. With inflation under control, further rate cuts are expected in the months ahead, especially as the global economic landscape remains uncertain.

In summary, Moody’s Ratings’ revised forecast underscores the growing geopolitical and global economic risks that are expected to weigh heavily on India’s growth in the near term. Despite these challenges, the agency remains cautiously optimistic about India’s inflation outlook and the RBI’s ability to support growth through monetary policy.

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