Fitch lifts 2025 global growth aim with a worrying rider, upgrades India forecast to 6.9% for FY26

Fitch Ratings has raised its forecast for India’s growth, projecting the economy to expand 6.9% in FY26, up from its earlier estimate of 6.5%. The upgrade comes after a stronger-than-expected performance in the second quarter of 2025, when real GDP surged 7.8% year-on-year, well above Fitch’s earlier projection of 6.7%.

“On the back of the 2Q25 outturn, Fitch has revised up its forecast for the fiscal year ending March 2026 (FY26) to 6.9% from 6.5% in the June GEO. Domestic demand will be the key driver of growth, as strong real income dynamics support consumer spending and looser financial conditions should feed through to investment. At the same time, annual growth will slow in the second half of the financial year, and so we expect growth to slow in FY27 to 6.3%. With the economy operating slightly above its potential, we expect growth will edge down to 6.2% in FY28,” the report said.

While global growth is losing steam, India is expected to remain above the 6% mark over the next three years, according to Fitch’s September Global Economic Outlook released on Wednesday. The agency lifted its 2025 world growth forecast marginally to 2.4%, buoyed by stronger data from China and the eurozone, but cautioned that the US economy is showing clearer signs of a slowdown.

For India, Fitch said: “Annual growth will slow in the second half of the financial year, and so we expect growth to slow in FY27 to 6.3%. With the economy operating slightly above its potential, we expect growth will edge down to 6.2% in FY28. We still expect the Reserve Bank of India (RBI) to cut rates by 25bp towards the end of the year, as it assesses the impact of the policy loosening already implemented, and that rates will stay there until end-2026. We expect the RBI to start raising rates in 2027.”

Global picture

The updated projections mark only a marginal upgrade from June, when Fitch expected 2.2% growth for 2025. But the bigger story is the slowdown compared to last year’s 2.9% expansion. China’s growth forecast has been revised upward to 4.7% (from 4.2%), the eurozone’s to 1.1% (from 0.8%), and the US’s to 1.6% (from 1.5%). For 2026, global growth is pegged at 2.3%.

Much of the uncertainty earlier this year revolved around US tariff policy. Fitch now estimates the effective US tariff rate at around 16%, broadly in line with assumptions in June. Mexico and Canada are seeing lower rates thanks to better compliance under the USMCA agreement, while Europe’s burden is also slightly lighter. Asia, excluding China, however, faces steeper-than-expected tariffs.“Greater clarity about US tariff hikes does not alter the fact that they are huge and will reduce global growth. And evidence of a slowdown in the US is now appearing in the hard data; it’s no longer just in the sentiment surveys,” said Brian Coulton, Chief Economist at Fitch.

US slowdown

The tariff shock has not yet pushed up consumer inflation sharply, partly because corporate profits have absorbed some of the costs. But Fitch expects price pressures to build later in 2025, curbing real wage growth and weakening consumer demand. Job growth is already slowing, in part due to tighter immigration policies that have restricted labour force expansion.

Even with a widening fiscal deficit expected to support demand in 2026, the US economy is projected to remain below trend, with growth stuck at 1.6% next year. Fitch now expects the Federal Reserve to deliver two rate cuts of 25 basis points each in September and December, followed by three more in 2026.