Economic momentum holding up despite trade war; FY26 GDP target raised to 6.4%: UBS

Mumbai: Swiss brokerage UBS on Tuesday raised its FY26 GDP growth forecast for India to 6.4 per cent from an earlier 6 per cent, underlining that economic momentum is holding up despite the trade war.

Official data released last week said India's economic growth slowed to 7.4 per cent in the March quarter, bringing down the annual growth rate to 6.5 per cent during 2024-25. In FY24, the economic growth was 9.2 per cent.

UBS said its expectation of a higher economic growth is driven by a better-than expected domestic demand momentum, a likely easing of tariffs on Chinese imports, hopes of cinching an US-India trade deal, and the tailwind of lower global crude oil prices.

"We now raise our forecast of India's FY26 real GDP growth to 6.4 per cent from 6 per cent. Our higher GDP forecast assumes no significant increase in the effective tariff rate against India and the overall global tariff situation remaining the same," it said.

The brokerage said its composite economic indicator suggests economic momentum held up in April despite the trade war.

It expects household consumption growth to pick up and become broad based as rural consumption gathers pace on hopes of a favourable monsoon and lower food prices, and an improvement in urban demand on policy stimulus including income tax relief, lower inflation and rate cuts.

The growth in capital expenditure is likely to decelerate marginally in FY26 on the risk of China offloading excess capacity in the manufacturing sector and heightened global uncertainty dragging on private corporate capex, it said, adding that stretched balance sheets will lead to a disappointment in the state capex.

India's goods exports are likely to lag amid weaker global trade prospects, it said, adding that services exports will likely remain supportive. The RBI is likely to do "heavy lifting" for growth by cutting rate by an additional 0.50-0.75 percentage points, it said.