After a better-than-expected 7.6% growth in the fiscal year 2024, as estimated by the National Statistical Office, India's real GDP growth is expected to moderate to 6.8% in the fiscal year 2025 (ending March 2025), according to the report released by S&P Global Ratings.
Growth is expected to pick up in trade-dependent developed economies such as South Korea, Taiwan, and Singapore, and fall in relatively domestic demand-led ones such as Japan and Australia. However, for Asian emerging market economies, robust growth is projected with India, Indonesia, the Philippines, and Vietnam in the lead.
The "Economic Outlook Asia-Pacific Q2 2024" report highlights that largely domestic demand-led economies such as India, Japan, and Australia, the impact of higher interest rates and inflation on household spending power reduced sequential GDP growth in the second half.
The report forecasts potential rate cuts of up to 75 basis points in economies such as India, Indonesia, New Zealand, and the Philippines, with the median reduction expected to be around 50 basis points. However, these moves are anticipated to occur predominantly in the latter half of the year.
In India, consumer inflation is expected to decline further to an average of 4.5% in the fiscal 2025. The Consumer Price Index or CPI, which measures retail inflation by examining the changes in prices of most common consumer goods and services, stood at 5.09 for February.
According to the report, slowing inflation, a smaller fiscal deficit and lower US policy rates will lay the ground for the Reserve Bank of India to start cutting rates.
In the face of global economic uncertainties, most Asia-Pacific central banks are adopting a cautious approach towards initiating interest rate cuts, according to the report. It highlights that Asia-Pacific economies are closely monitoring the actions of the United States' Federal Reserve, aiming to prevent potential capital outflows and currency instability by refraining from significant rate reductions ahead of the US central bank.
Louis Kuijs, the Chief Economist for S&P Global Ratings Asia-Pacific, noted that while some central banks in the region may consider rate cuts in the coming months, they are likely to wait for signals from the US Fed before taking decisive action.
Despite risks surrounding the US economy, including concerns about inflation and a potential economic slowdown, Asia-Pacific central banks remain cautious about easing monetary policy due to the impact of higher US interest rates on capital outflows in the region.
In China, GDP growth is expected to decelerate to 4.6% in 2024, reflecting ongoing weaknesses in the property market and moderate macroeconomic policy support.
The report emphasises that while inflationary pressures have softened, Asia-Pacific central banks are closely monitoring economic indicators, with the possibility of rate cuts becoming more compelling if current policy rates continue to affect demand.
