New Delhi: India is poised to experience a relatively sheltered stance against the anticipated global economic tremors stemming from a potential trade conflict between the United States and China in 2025, as per a report by Goldman Sachs.
The analysis indicates that, notwithstanding the prevailing global uncertainties, India's long-term structural growth prospects remain solid.
"In 2025, we anticipate that India will likely emerge as a relatively insulated economy from the global shocks that may arise from a potential trade war between the US and China," the report states.
However, the analysis also points to an expected slowdown in cyclical growth, with the forecast for the country's GDP growth rate to decelerate to 6.3 percent year-on-year in 2025. This slowdown is attributed to the continuation of fiscal consolidation efforts and tighter credit conditions, as a result of macro-prudential measures implemented by the Reserve Bank of India (RBI).
According to the report, the RBI's monetary policy is expected to adopt a cautious approach in 2025. It suggests that the central bank will initiate a gradual reduction in interest rates, starting from the first quarter of 2025, culminating in a cumulative decrease of 50 basis points by mid-year.
Despite calls for more accommodative monetary policies to bolster economic growth, the RBI is expected to proceed with caution, considering the strong US dollar environment and uncertainties surrounding global trade.
The report further suggests that retail loan growth may remain subdued, even with the reduction in interest rates, due to ongoing macro-prudential tightening measures.
Although inflation is projected to align with the RBI's target for the upcoming year, the rate-cutting cycle is anticipated to be limited. The RBI is likely to adopt a balanced strategy, maintaining monetary policy close to the nominal neutral rate, estimated at 6 percent.
The report concludes, "While the cyclical growth slowdown necessitates the adoption of easier monetary conditions in our view, the 'stronger dollar' scenario will likely prompt the RBI to proceed with caution."
It is projected that a 25-basis-point reduction in the repo rate will occur in February 2025, followed by another 25-basis-point reduction in April. Additionally, the RBI is expected to maintain a liquidity surplus, enabling overnight inter-bank rates to fall to 5.75 percent, thereby delivering a 75-basis-point easing from the current levels of 6.50 percent.
Despite these short-term challenges, India's economy is expected to maintain stability amidst global trade tensions, demonstrating its resilience in the face of external shocks.
