India’s Projected GDP Growth to Reach 7% in 2026 as Regional Dynamics Shift, Says S&P Global Ratings

S&P Global Ratings, in its report titled ‘China Slows, India Grows’, forecasts a significant shift in Asia-Pacific’s economic landscape, with India’s GDP growth projected to reach 7% by 2026. This development is seen as part of a broader transition where the region’s growth engine is shifting from China to South and Southeast Asia.

According to S&P Global Ratings, China’s GDP growth is expected to slow down to 4.6% in 2024, with a slight increase to 4.8% in 2025, and returning to 4.6% in 2026. In contrast, India is projected to attain a 7.0% growth rate in 2026, up from 6.4%. Other nations in the region, including Vietnam, the Philippines, and Indonesia, are also expected to show robust growth rates.

S&P Global Ratings has recently updated India’s GDP growth forecast for the fiscal year 2024 (ending in March 2024) to 6.4% from an earlier estimate of 6%. This revision reflects strong domestic demand, which seems to be counterbalancing the challenges posed by high food inflation and weak exports.

The report also highlights the challenges facing the Asia-Pacific region, noting the likelihood of high interest rates by central banks, which could increase the cost of debt servicing for borrowers. Additionally, potential conflicts in the Middle East could disrupt global supply chains and escalate energy costs, further fueling inflation and affecting both corporate margins and consumer demand.

Specific to China, S&P Global Ratings acknowledges the government’s stimulus measures, including the approval of a RMB 1 trillion sovereign bond issue. However, the real estate sector in China continues to face challenges, with weak demand for new properties impacting developers’ cash flows and land sales revenues.

Globally, the agency anticipates a soft landing for the U.S. and Europe in 2024, but warns of the risks associated with a potential hard landing, which could dampen spending by businesses and households, thereby slowing demand and affecting revenues.

The report also discusses the risk of energy shocks and slower global demand, which are significant concerns for the Asia-Pacific’s growth. S&P Global Ratings has adjusted its growth projection for the region (excluding China) in 2024 from 4.4% to 4.2%, citing varying prospects across different industries.

Regarding current geopolitical tensions, S&P Global Ratings notes that while an energy shock seems unlikely, any significant increase in energy prices or disruption in supply chains could reignite inflationary pressures and hamper trade.

In India, the finance ministry remains optimistic about the country’s GDP growth outlook for the financial year 2023-24, projecting an overall growth of 6.5% for the fiscal year. The ministry highlights that economic activity in India has maintained its momentum, with high-frequency indicators suggesting positive trends in the second quarter of the fiscal year.