New Delhi [India], November 21 : India will be relatively insulated from the global economic shocks expected from a potential trade war between the United States and China in 2025, according to a report by Goldman Sachs.
The report says 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
However, the report highlighted that a cyclical growth slowdown is anticipated, with the country's GDP growth forecast to decelerate to 6.3 per cent year-on-year in 2025.
This slowdown is attributed 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. It predicts that the central bank will begin easing interest rates from the first quarter of 2025, with a cumulative reduction of 50 basis points by mid-year.
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 per cent.
It said, "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"
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 per cent, effectively delivering a 75-basis-point easing from the current levels of 6.50 per cent.
Despite the short-term challenges, India's economy is anticipated to maintain stability amidst global trade tensions, showcasing its resilience in the face of external shocks.
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