Morgan Stanley has revised India’s FY25 growth forecast from 7% to 6.7% due to weaker-than-expected economic data from Q2, with the economy now projected to grow at a slower 6.3%. Despite this downgrade, the firm remains optimistic about a recovery in the latter half of FY25, anticipating growth to rebound to around 6.7-6.8%, driven by agricultural output and government spending.
Weak Q2 Data: The downgrade is primarily due to slower-than-expected growth in Q2, with the economy now expected to expand by just 6.3%.
Recovery in H2 FY25: A stronger recovery is expected in the second half of FY25, supported by better agricultural output and higher government expenditure, which is expected to boost economic growth.
Government Spending: A decline in government cash balances in October and November signals a likely increase in spending, which is expected to help drive the recovery.
Mixed Consumer Activity: Vehicle registration data reveals a mixed picture, with lower passenger vehicle sales and increased two-wheeler sales. However, post-festive credit card usage indicates growing consumer confidence.
Inflation Easing: Morgan Stanley forecasts a decline in inflation to 4.3% by FY26, down from 4.9% in FY25, primarily driven by stable commodity prices and effective monetary policies. However, food price management continues to be a key challenge, and core inflation may see slight increases.
Monetary Policy: The Reserve Bank of India (RBI) is expected to implement rate cuts in April 2025 as inflation moderates, aiding economic recovery.
Steady FY26 and FY27 Projections: Morgan Stanley maintains its growth forecast of 6.5% for FY26 and FY27, with domestic demand continuing to play a crucial role in India’s economic performance.
In a broader context, Morgan Stanley has also downgraded its outlook for China, reflecting growing headwinds for emerging markets, and anticipates challenges for corporate earnings globally in the near future.
Why in News | Key Points |
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Morgan Stanley Revises India’s FY25 Growth Forecast | – Revised India’s FY25 growth forecast from 7% to 6.7%. – Downgrade due to weaker-than-expected Q2 data, with Q2 growth projected at 6.3%. – Recovery expected in the second half of FY25, with growth rebounding to 6.7-6.8%. – Key drivers: agricultural output and government spending. |
Inflation Forecast | – Projected inflation for FY25: 4.9%. – Projected inflation for FY26: 4.3%. – Inflation management challenge: Food prices. |
Monetary Policy | – RBI expected to cut rates in April 2025 in response to moderating inflation. |
Key Indicators | – Government cash balances declined in October-November, signaling likely increase in government spending. – Mixed consumer activity: Passenger vehicle sales down, two-wheeler sales up. |
Long-Term Projections | – FY26 and FY27 growth forecast: 6.5%. – Domestic demand remains a key driver for economic growth. |
Global Context | – Morgan Stanley downgraded China to “underweight” in emerging markets. – Headwinds expected for corporate earnings and market valuation. |
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