Fitch Ratings Lowers India's Growth Forecast Amid Global Trade War Escalations

On Thursday, Fitch Ratings revised India's GDP growth estimate down by 10 basis points to 6.4% for the current fiscal year, citing concerns over a "severe" escalation in the global trade war. However, the projections for the next financial year remain unchanged.

"It is difficult to predict US trade policy with any confidence. Massive policy uncertainty is hurting business investment prospects, equity price falls are reducing household wealth, and US exporters will be hit by retaliation," Fitch stated in its special update to the quarterly Global Economic Outlook.

In addition to India's revised growth forecast, Fitch also lowered its global growth projections for 2025 by 0.4 percentage points and cut growth estimates for China and the US by 0.5 percentage points from its March GEO.

"Fitch Ratings' forecasts for world growth have been sharply lowered in response to the recent severe escalation in the global trade war. World growth is projected to fall below 2% this year; excluding the pandemic, this would be the weakest global growth rate since 2009," the report noted.

For India, Fitch reduced GDP growth estimates for both the 2024-25 fiscal year and the current 2025-26 fiscal year by 10 basis points to 6.2% and 6.4%, respectively. The growth forecast for the 2026-27 fiscal year remains at 6.3%.

The US GDP growth rate is expected to stay positive at 1.2% for 2025. Meanwhile, China's growth is projected to fall below 4% both this year and next, and growth in the eurozone is anticipated to remain well below 1%, according to Fitch's projections.

The report highlighted that the US "Liberation Day" tariff hikes were significantly worse than anticipated.

Although these hikes were temporarily paused and replaced with a near-universal 10% rate for 90 days, the initial shock led to several rounds of retaliatory actions between China and the US, pushing bilateral tariff rates above 100%.

The US average effective tariff rate (ETR) has surged to 23%, the highest since 1909 and well above the 18% Fitch assumed in March. Fitch now expects the US ETR on China to stay above 100% for some time before dropping to 60% in 2026.

"For now, we stick with our March assumption of a 15% US ETR on other trade partners," Fitch added.

(With inputs from PTI)