NEW DELHI: India will remain the fastest-growing major economy in 2026 and 2027 even as it “will lose a step, too” amid softer growth elsewhere, Moody’s Analytics said in its latest global outlook commentary.
The global economy is expected to grow at 2.5 per cent in 2026 and 2.8 per cent in 2027, both short of the 3 per cent-plus growth the world is capable of, the agency said in its report titled Global Outlook: Running Hot, Running Cold.
Booming demand for artificial intelligence (AI) has saved the global economy from a sharper slowdown, the agency said, but geopolitical risks, stretched asset valuations and volatility in financial markets could easily flip the outlook from slow growth to recession.
“Growth will slow in 2026, but by less than we expected at the start of this year,” the report added.
Moody’s Ratings, the sister arm of Moody’s Analytics, in May lowered its growth forecast for India to 6 per cent from 6.8 per cent for 2026.
Moody’s Analytics, in its latest report, said the AI boom has driven a surge in data centre investment, lifted exports in Asia’s technology-heavy economies and supported equity valuations globally.
Segments less exposed to it have struggled, it said. “Geopolitical upheaval and trade disruptions, from the Middle East conflict to friction between the US and its trading partners, have driven up prices and the cost of doing business,” it highlighted.
The result, the agency said, is a K-shaped world economy in which some countries and industries advance while others fall behind.
Moody’s Analytics said central banks face a difficult course between accelerating inflation and pressure on growth. Inflation is reaccelerating, and while the agency expects an end to the West Asia conflict to render the pickup transitory, it said tighter monetary policy will squeeze business and consumer spending.
“Even if commodity flows eventually return to something like their pre-conflict norms, the economic damage is done,” the report added.
The agency added that central banks tempted to raise interest rates to strengthen their currencies against commodity-driven inflation are likely to hesitate, since simultaneous action by neighbouring economies would leave exchange rates largely unchanged while constraining growth. “In short, rate hikes will not reopen the Strait of Hormuz,” it noted.
Moody’s Analytics said risks to the forecast tilt firmly to the downside, with geopolitics at the top of its list of concerns. A fresh flare-up in the Middle East, or a prolonged disruption to commodity flows through the Strait of Hormuz, would push oil prices well above the baseline, lifting inflation and hurting growth.
“Such a shock would sharpen the trade-offs facing central banks—cut rates to support the real economy and risk faster inflation, or raise rates to curb inflation and inflict more damage on growth,” the agency added.
The report also flagged stretched equity valuations, jittery bond markets and exchange rates that are badly misaligned, particularly in East Asia.
Source: Business Standard
