India is likely to remain relatively shielded from the economic repercussions of a potential trade war between the United States and China in 2025, according to a Goldman Sachs report. Despite global uncertainties, the report underscores India’s robust long-term structural growth prospects.
“In 2025, we believe India will likely be a relatively insulated economy from global shocks emanating out of a potential trade war between the US and China,” the report stated.
However, the report cautions about a cyclical slowdown, with India’s GDP growth forecasted to dip to 6.3% year-on-year in 2025. The slowdown is attributed to fiscal consolidation and tighter credit growth driven by macro-prudential measures implemented by the Reserve Bank of India (RBI).
Goldman Sachs predicts that the RBI will adopt a cautious monetary policy approach, with interest rates expected to ease starting from the first quarter of 2025. The central bank is likely to implement a cumulative 50-basis-point rate cut by mid-year, including a 25-basis-point reduction in February followed by another in April.
Despite calls for a more accommodative monetary stance to stimulate growth, the RBI is expected to act prudently, considering global trade uncertainties and a strong US dollar. Retail loan growth may remain subdued due to ongoing macro-prudential tightening, even as lower interest rates aim to boost the economy.
Inflation is projected to align with the RBI’s target in 2025, but the rate-cut cycle will likely be limited. The central bank aims to balance growth and stability, keeping monetary policy near the nominal neutral rate of 6%. The report suggests maintaining a liquidity surplus, allowing overnight inter-bank rates to drop to 5.75%, effectively delivering a 75-basis-point easing from current levels.
Despite short-term challenges, the Indian economy is expected to exhibit resilience amidst global trade tensions, showcasing its ability to withstand external shocks.
