ADB cuts India's GDP growth forecast for FY 2025 to 6.5%, gives these reasons

The Asian Development Bank (ADB) cut India's economic growth forecast on Wednesday. The reason behind this is for the current financial year from 7% to 6.5% due to lower-than-expected growth in private investment and housing demand. The multilateral development bank has also lowered India's growth forecast for the financial year 2025-26.

According to the latest version of the Asian Development Outlook (ADO), changes in US trade, fiscal, and immigration policies could affect growth in developing Asia and the Pacific region and increase inflation.

The report also said that the economies of Asia and the Pacific region are expected to grow at a rate of 4.9% in 2024, this figure is slightly lower than ADB's September forecast of 5%.

ADB said, "India's growth outlook has been lowered from 7% to 6.5% for this year and from 7.2% to 7% for next year due to lower than expected growth in private investment and housing demand."

Last week, the RBI also cut the growth forecast for the current financial year to 6.6% from 7.2% and also raised the inflation forecast to 4.8% in view of the slowdown in economic activities and a rise in food prices.

This has led to the lowest growth rate in seven quarters, 5.4% in the July-September period of the current financial year 2024-25, even as the RBI itself projected a growth rate of 7%.

According to ADB, despite the cut in estimates, India's growth will remain strong. The economy will be supported by high agricultural production due to the summer (or Kharif) crop season (which will also put pressure on food prices). Continued resilience in the services sector and Brent crude prices will be lower than expected in 2024 and 2025.

ADB has said that strong forward-looking labor market indicators such as PMI for industry and services, urban labor force participation, and the Reserve Bank of India's industrial outlook suggest that economic momentum will be restored in the coming quarters.

The report also says that it has raised the growth forecast of Southeast Asia, to 4.7% from the previous 4.5% this year because of its strong manufacturing export and public capital expenditure.

Meanwhile, ADB's projection for next year remains unchanged at 4.7%. The Manila-headquartered bank left the growth forecast for China unchanged at 4.8% this year and 4.5% next year.

According to the report, economic growth in Asia and the Pacific is forecast to remain stable during the year and next, although expected US policy changes under the administration of newly elected President Donald Trump are likely to hit the region's longer-term outlook.