Morgan Stanley, a global brokerage, on Monday lowered India’s GDP growth forecast for current fiscal to 6.7 per cent from 7 per cent earlier. 

This lowering of GDP growth forecast is mainly due to slower growth expected in July-September 2024 quarter at 6.3 per cent, this foreign brokerage said in its 2025 India Economics Outlook.

Morgan Stanley, however, expects GDP growth to rebound to around 6.7-6.8 per cent in second half this fiscal, driven by a pick-up in agriculture growth and government spending. 

“For FY 2025-26 and FY 2026-27, we expect growth to remain at 6.5 per cent supported by domestic demand”, Upasana Chachra, Chief India Economist, Morgan Stanley Group Research said in a research note. 

Morgan Stanley Research expects consumption demand to remain supported, helped by the recovery in rural demand.

“On the investment side we expect public and household capex to provide support even as private capex continues to gradually recover. On the external demand side, we expect uncertainty with respect to trade and tariff policies to weigh on export growth”, Chachra said. 

High frequency data for July-September 2024 have been weak, as indicated by GST collection growth dipping to a 40-month low in September, core sector output declining in August (after 41 months of expansion), manufacturing PMI slipping to an 8-month low in September, and passenger and two-wheeler sales moderating. 

This slowdown was driven by temporary factors such as (i) excess rainfall in August impacting production activity, (ii) shift in calendar dates with the inauspicious period of pitru-paksha in September and (iii) slowdown in government spending.

However October data show a rebound is likely. The high frequency growth data for October does show nascent signs of a pickup after slowing down in the previous two months, helped by festive season related sales, Morgan Stanley Research said. 

Monetary Easing 

Morgan Stanley Research expects the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) to implement its first policy rate cut in its April 2025 meeting.

“We build in a shallow easing cycle of 50bps as moderating inflation, with help from food prices, creates room for policy easing. We expect the first rate cut in 2Q25 (April meeting) as we anticipate more evidence of inflation moderating on a durable basis,” Chachra added.

The central bank has kept policy rates unchanged at 6.5 percent since February 2023. It is widely expected that MPC may —given the high retail inflation in the economy—keep policy rate unchanged at the upcoming December 2024 meeting. 

On the fiscal side, Morgan Stanley Research expects a glide path approach to bring the central government fiscal deficit lower, however spending skew will remain in favour of capital creation.

Inflation forecast 

Morgan Stanley Research expects retail inflation to moderate to 4.3 percent in 2025-26, lower than the level of 4.9 percent in FY 2024-25.

The outlook on inflation hinges on food inflation, which constitutes the bulk of the Consumer Price Index (CPI) basket. “As such, with an improved outlook for summer and winter crops, we expect food inflation to moderate in the next 12 months,” Chachra said.

Further, while core inflation has been trending down in the past 12 months, it is likely to see some upward pressure. Uncertainty with respect to global commodity prices may increase somewhat, impacted by trade/tariff policies, Morgan Stanley has said.

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