World Bank Holds India FY26 Forecast at 6.3%

 

New Delhi, June 11, 2025: The World Bank sounded a stark warning on Tuesday, declaring the global economy is "once more running into turbulence" fueled by escalating trade tensions and policy uncertainty, forcing a significant downgrade in growth prospects for most nations. While slashing its global growth forecast, the Bank maintained India's growth projection for the fiscal year 2025-26 (FY26) at 6.3%, unchanged from its April estimate but lower than its January outlook.

In its latest "Global Economic Prospects" report, the Bank cut its global growth projection for 2025 to 2.3%, a 0.4 percentage point reduction from its January forecast. Further slowdowns are anticipated, with growth pegged at 2.4% in 2026 (down 0.3 points) and 2.6% in 2027. Indermit Gill, Senior Vice President and Chief Economist at the World Bank Group, painted a concerning picture: "Only six months ago, a soft landing appeared to be in sight... That moment has passed. Without a swift course correction, the harm to living standards could be deep."

India's Steady but Tempered Outlook

Against this gloomy global backdrop, the World Bank kept India's FY26 growth forecast steady at 6.3%, consistent with its April prediction in the South Asia update. However, this figure remains 0.4 percentage points below the more optimistic projection made in January. The Bank attributes this downward revision from earlier in the year primarily to anticipated weaker economic activity among India's key trading partners and the rising tide of global trade barriers, which are expected to curb Indian exports.

Looking beyond FY26, the Bank projects a moderate acceleration for the Indian economy. Growth is forecast to rise to 6.5% in FY27 and further to 6.7% in FY28. This anticipated recovery is partly linked to expectations of robust services activity contributing to a pickup in exports. The report notes India's data is presented on a fiscal year basis, unlike the calendar year reporting used for most other economies.

Global Headwinds: Trade Wars and Geopolitics

The report identifies a "complex interplay of geopolitical conflicts and escalating trade barriers" as the primary source of severe headwinds for the global economy. The ongoing war in Ukraine, alongside other regional conflicts, continues to disrupt critical supply chains, fuel inflation, and erode business confidence worldwide. This instability is significantly worsened by a proliferation of protectionist trade measures.

A prominent example highlighted is the US-India tariff dispute. The report references US President Donald Trump's April 2nd announcement of a 27% reciprocal tariff on Indian goods, citing India's average 52% duty on US imports. While the US has since temporarily reduced this tariff to 10%, providing some relief, the underlying tensions and the potential for escalation remain a significant concern. The World Bank noted that its sister institution, the International Monetary Fund (IMF), had already cut India's FY26 forecast to 6.2% in April, citing trade risks from the US global tariff war.

Intensifying Global Risks and Policy Uncertainty

The World Bank emphasized that global risks are intensifying. The "spectre of further trade barriers and heightened policy uncertainty" looms large. Additional major concerns include:

• Higher-than-expected global inflation: This could trigger tighter financial conditions, potentially weakening emerging market currencies and spurring destabilizing capital outflows.
• Geopolitical tensions: Escalation of existing conflicts or emergence of new ones.
• Extreme climate events: More frequent and severe natural disasters pose a growing threat.
• Social unrest: Potential for surging violence and instability, particularly cited as a downside risk for South Asia.

"Downside risks to the outlook predominate," stated Gill, listing "an escalation of trade barriers, persistent policy uncertainty, rising geopolitical tensions, and an increased incidence of extreme climate events." He offered a glimmer of hope, noting that "policy uncertainty and trade tensions may ease if major economies succeed in reaching lasting agreements." However, he underscored a worrying trend for emerging markets: a decline in their ability to narrow income gaps with richer nations, boost job creation, and reduce extreme poverty.

Sharp Slowdown in Advanced Economies

The report details a particularly sharp deceleration expected in advanced economies. Collectively, growth is projected to slow to 1.2% in 2025, 1.4% in 2026, and 1.5% in 2027.

• United States: Growth is projected to slow to 1.4% in 2025, then modestly recover to 1.6% in 2026 and 1.9% in 2027. These figures represent a substantial downward revision of 0.9 percentage points for 2025 and 0.4 points for 2026 compared to January.
• Europe: The outlook is even weaker, with growth forecasts of just 0.7% in 2025, 0.8% in 2026, and 1.0% in 2027. This is a significant cut of 0.3 percentage points for 2025 and 0.4 points for 2026 from earlier estimates.

EMDEs Show Relative Resilience, China Moderates

In contrast to advanced economies, emerging market and developing economies (EMDEs) are projected to exhibit more robust, though slightly tempered, growth. The World Bank forecasts the EMDE group to expand by 3.8% in both 2025 and 2026, edging up to 3.9% in 2027. Within this group, China's growth is expected to moderate, reflecting a broader trend of maturing economies, with projections of 4.5% in 2025, 4.0% in 2026, and 3.9% in 2027.

Future Hinges on Trade Policy Evolution

The report concludes that the global economic outlook "largely hinges on the evolution of trade policy globally." It warns that growth could undershoot projections if trade restrictions escalate, policy uncertainty persists (potentially leading to financial stress), major economies weaken further, conflicts worsen, or extreme weather events intensify.

Conversely, the upside potential lies in the possibility that "uncertainty and trade barriers could diminish if major economies reach lasting agreements that address trade tensions." For now, the World Bank's message is clear: the global economy is navigating turbulent waters, with trade tensions casting a long shadow, and swift, cooperative policy action is needed to avoid significant harm to global prosperity and living standards. India's economy, while holding steady in the near term according to the forecast, remains exposed to these powerful global crosscurrents