Investing.com -- India’s economy is expected to navigate a slow start to 2025 but remains on track for steady medium-term growth, according to a BofA Global Research note. While near-term indicators signal weakness, the broader outlook suggests the country could maintain its trajectory toward becoming a $5 trillion economy in three years and potentially double that by the next decade.
The report notes that India’s economic activity has been cooling over recent months, with GDP growth for Q3 2024 slipping to 5.4%. However, key indicators such as power and fuel consumption are starting to stabilize, hinting at a gradual recovery in the second half of FY25. Growth for FY25 is forecasted at 6.5%, with a potential uptick to 7% in FY26 if supportive policy measures align.
With inflation expected to stabilize near the Reserve Bank of India (NS:BOI)'s (RBI) 4% target, the bank anticipates the first signs of monetary easing in February 2025. A total of 100 basis points of rate cuts is expected during the year, which could provide much-needed momentum to the economy. The RBI’s strong foreign exchange reserves also offer a buffer against external risks.
A slowdown in public capital expenditure has weighed heavily on industrial and investment activity. The pace of spending has lagged significantly in recent months, though there is optimism that fiscal activity could pick up in the latter half of the fiscal year. However, the subdued performance in key sectors like logistics and discretionary consumption suggests recovery may take time.
India’s external sector remains resilient, buoyed by robust services exports and stable current account dynamics. While potential headwinds like geopolitical risks and China’s slowdown loom, a manageable current account deficit around 1% of GDP is expected to lend stability.
Bayesian Optimism
Analyst remains cautiously optimistic as medium-term growth prospects are supported by policy easing, improved terms of trade, and potential infrastructure development. With inflation pressures easing and fiscal spending set to improve, India is positioned for a gradual recovery that could accelerate in 2026.
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