Fitch Lowers India’s Growth Forecast Amid Global Trade Tensions

Fitch Ratings has revised India’s GDP growth forecast downward for the current fiscal year, cutting it by 10 basis points to 6.4%. This adjustment comes amidst heightened global trade tensions, notably the escalation of the trade war between the United States and China. Fitch also lowered its global growth projections, citing ongoing uncertainties in trade policies and economic impacts, which are affecting business investments, global equity markets, and international trade dynamics.

Why in the news?

• Fitch Ratings has reduced India’s GDP growth forecast for the current fiscal year to 6.4%, down from its previous projection, as global trade tensions weigh on the country’s economic outlook. The downgrade reflects the broader economic slowdown linked to the ongoing trade war between the United States and China.

India’s Growth Projection Adjusted

• Fitch Ratings has revised India’s GDP growth estimate for both the 2024-25 and 2025-26 fiscal years, cutting it by 10 basis points to 6.4%.
• Despite this reduction, the GDP growth forecast for the 2026-27 fiscal year remains unchanged at 6.3%.
• The downgrade follows concerns about a global economic slowdown, with trade tensions significantly affecting India’s economic prospects.

Global Economic Impact of Trade War

• Fitch also lowered its global growth forecast for 2025 by 0.4 percentage points, citing the trade war between the US and China as a significant driver of global economic uncertainty.
• The global growth rate is expected to fall below 2% for 2025, marking the weakest growth since 2009, excluding the pandemic years.
• Both the US and China have seen their growth projections cut by 0.5 percentage points due to the ongoing tariff hikes and retaliatory measures.

Implications of US-China Trade Tensions

• The US has increased its effective tariff rate (ETR) to 23%, the highest level since 1909, which has caused substantial disruptions in global trade.
• The ‘Liberation Day’ tariff hikes imposed by the US and subsequent retaliatory tariffs by China have raised bilateral tariffs to over 100%, severely affecting trade between the two largest economies in the world.
• Fitch predicts that US tariffs on China will remain above 100% for some time, potentially affecting global supply chains and international businesses.

India’s Position Amidst Global Slowdown

• India’s economy is feeling the effects of these global developments, as its export and business investment sectors face uncertainty.
• Additionally, reduced household wealth due to global equity price declines further complicates India’s economic outlook.
• Despite these challenges, India’s economic fundamentals remain resilient, but the global environment poses significant risks to sustained growth.

Impact on Other Major Economies

• The US economy is still projected to grow at 1.2% in 2025, but the trade war impacts are expected to dampen this growth.
• China’s growth is expected to remain below 4% both this year and next, as the country faces the dual challenges of an ongoing trade war and its own internal economic pressures.
• The Eurozone’s growth is forecast to stay well below 1%, continuing to struggle with economic stagnation.