UBS Revises India’s Real GDP Growth Forecast for FY26
UBS has revised India’s real GDP growth forecast for FY26 down to 6 percent from its earlier projection of 6.3 percent. This adjustment reflects concerns over rising global economic challenges and a new 27 percent tariff imposed by the United States, effective from April 15. UBS, a leading Swiss investment bank, suggests that India’s export opportunities may be adversely affected due to weaker global demand and the potential for prolonged trade tensions with major partners like the US and China.
GDP Cut Reflects Global Uncertainty, Tariff Impact
The latest downgrade by UBS factors in economic pressures arising from the newly implemented US tariffs and an overall global slowdown. Initially, UBS anticipated a 25-basis-point drag on growth but revised this downward in light of recent developments. While improvements in rural and urban demand might offer some support to the domestic economy, UBS cautions that private corporate capital expenditure could face delays due to dampened sentiment and concerns over China flooding global markets, including India, with excess capacity.
“India’s goods exports could take a significant hit due to weaker global growth. Our baseline forecast assumes that India might propose more tariff cuts on US imports and increase purchases of US goods, such as energy and defense equipment, at the expense of imports from Russia,” UBS noted in their report.
Domestic Demand Likely to Cushion the Blow
Despite external shocks, UBS believes household consumption could remain a strong pillar of the economy. The brokerage anticipates that a cyclic rural recovery, supported by favorable crop prospects and easing inflation, will bolster consumption. Urban demand is also expected to benefit from prospective rate cuts and declining fuel prices. Nonetheless, the firm warns of a potential setback to India’s goods exports amid slowing global trade.
UBS Sees More Room for Monetary Easing
UBS projects that India’s domestic growth could gain from further policy interventions. A more profound easing cycle by the Reserve Bank of India is now projected, with rate cuts of up to 125 basis points, as opposed to the previously estimated 75 basis points. With inflation expected to moderate to 4 percent in FY26, aided by lower global crude prices and cheaper Chinese goods entering India, UBS urges the central government to adhere to its FY26 capital expenditure targets and consider reducing retail fuel prices to support household purchasing power.
Tariff Negotiations with US a Key Watchpoint
India’s balanced approach towards trade negotiations with the United States could prove advantageous. UBS cites media reports suggesting that a revised trade agreement may be reached by the end of the year. Current discussions focus on reducing tariffs across sectors like agriculture, energy, automobiles, electronics, and textiles, which together make up about 50 percent of India’s exports to the US.
Global Growth and Trade Face Broader Risks
The unexpectedly high US tariffs could potentially lower global trade volumes by up to 7.5 percentage points, UBS warned. The bank’s US economics team has also reduced their 2025 GDP growth projections for the US from 1.6 percent to 0.4 percent. Similarly, the Asia economics team expects significant ripple effects, forecasting a 5 percentage point contraction in Chinese exports and a 1.5 percentage point dip in China’s GDP. ASEAN-5 economies might also experience a 0.7-percentage-point reduction in growth.
While UBS recognizes that India is not immune to global trade tensions, it believes the country is relatively less vulnerable, thanks to its limited dependence on goods trade and the increasing share of services exports, which now account for nearly 47 percent of total exports. Despite the revised GDP forecast, UBS maintains that India’s structural growth narrative remains strong, with manageable macro risks and potential cushioning from domestic demand and policy support.
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