Goldman Sachs Pares India’s Growth Target Second Time In A Month, Expects GDP Expansion At 5.9% In 2026
· Free Press Journal
The United States-Israel-Iran war may have a deep impact on the growth prospects of India, the world’s fastest-growing major economy.
With energy prices rising to record levels and inflationary pressure increasing, the global investment banking firm Goldman Sachs has slashed India’s growth target for 2026 to 5.9 percent compared to its pre-war forecast of 7 percent, according to a report by Reuters.
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This is the second time that the financial sector giant has pared India’s growth forecast after the start of the war. On March 13, it had cut India’s GDP growth target to 6.5 percent.
India's GDP Reshuffle: Decoding The Numbers, Narrative, And Nuances Of The New 2022-23 Base YearHence, India’s GDP may grow 110 basis points slower due to the impact of the war in the Gulf region.
Moreover, the war will trigger inflationary pressures on the economy. Hence, Goldman Sachs has also raised the inflation forecast for the year from 3.9 percent earlier to 4.6 percent, a hike of 70 basis points.
Also, to tame inflation, Goldman Sachs expects the Reserve Bank of India may raise policy rates by 50 basis points this year.
The latest changes in forecasts for macroeconomic indicators have come after the firm revised its understanding of the energy situation and the duration of supply disruptions.
'Faced Challenges Before By Staying United During COVID-19': PM Narendra Modi Tells Lok Sabha Amid West Asia CrisisElevated fuel prices will deplete foreign reserves, trigger inflation, and pose fiscal risks for India, which relies on imports to meet over 80 percent of its energy needs.
With the crucial waterway, the Strait of Hormuz, almost choked since the outbreak of the war in late February, oil prices have jumped over 50 percent from their pre-war levels.
Goldman Sachs expects that the near-closure of the Strait of Hormuz may extend into mid-April before normalising over the following 30 days. This will push average Brent crude prices to $105 in March and $115 in April before falling to $80 per barrel in the fourth quarter of the year.