Fitch Lifts India Growth Forecast, Expects One Last Cut This Week

Fitch Ratings has upgraded India’s GDP forecast for 2025-26 to 7.4% from 6.9% earlier, citing stronger-than-expected momentum in the first half of the year. The revision follows the July–September growth print of 8.2%, an acceleration from 7.8% in the previous quarter.

In its latest Global Economic Outlook – December 2025, the agency notes that real income gains, firmer consumer sentiment and the effects of recent goods and services tax reforms continue to support household spending in India.

The report highlights the narrowing gap between nominal and real GDP, with the GDP deflator rising only 0.5% year on year. This reflects subdued price pressures and reinforces the role of real demand in sustaining activity. While growth in the remainder of 2025-26 is expected to moderate, domestic consumption remains the central driver.

Fitch expects growth to converge toward its trend rate of 6.4% in 2026-27 as inflation begins to constrain household purchasing power and public investment normalises under a tighter fiscal stance. Private investment, however, is projected to pick up in the second half of 2026-27 as financial conditions ease, supported by the lagged effects of monetary accommodation. Over 2027-28, growth is expected to slow slightly to 6.2%, with a rebound in imports offsetting any increase in domestic activity. The agency also notes that India faces relatively high tariff barriers on exports to the US and suggests that a bilateral trade agreement could support external demand.

On inflation, Fitch underscores the sharp fall in consumer prices to 0.25% in October, driven by sustained declines in food and beverages. Food prices have been falling since June, supported by favourable monsoon patterns and adequate buffer stocks. Core inflation, however, remains above 4%, in part due to elevated gold and silver prices. Inflation is expected to rise above the target band by end-2026 due to base effects before stabilising slightly in 2027.

Fitch expects the Reserve Bank of India to deliver one final 25-basis-point rate cut in December, taking the policy rate to 5.25%. With core inflation firming and growth projected to stay strong, the agency sees the December move as the last step in the current easing cycle. Policy rates are expected to remain unchanged at 5.25% for the next two years.

Global Outlook
Fitch expects global GDP growth to slow to 2.5% in 2025 from 2.9% in 2024, the weakest pace since the pandemic. The deceleration is led by the US, where growth is forecast to ease to 1.8% as consumption slows.

 The US slowdown is expected to be milder than previously anticipated due to resilient consumer spending and a sharp rise in private-sector capex linked to the AI investment cycle. Fitch now forecasts nearly 4% growth in private investment in 2025. Consumption is expected to soften in 2026 as real wages are squeezed, but fiscal easing and firm investment should keep GDP growth at around 1.9%.

China’s 2025 growth is tracking close to 5%, supported by strong exports even under higher US tariffs. Domestic private demand remains subdued amid weaker investment, ongoing property-sector stress, sluggish retail activity and persistent deflation. Fitch expects fiscal support to prevent growth from falling below 4% in 2026, though a notable slowdown remains likely.