The recovery in private corporate investment in India may face further delays due to weak corporate sentiment triggered by higher US tariffs and the risk of China offloading excess manufacturing capacity, according to a recent report by UBS.
The report stated that while household consumption in India is expected to remain steady, the business outlook has turned cautious. It said rural demand is likely to bounce back due to good crop prospects, and urban demand is expected to stabilise with easing inflation and interest rate cuts.
However, these positive domestic trends may not be enough to boost corporate investment in the short term. It said, “There could be a further delay in private corporate capex recovery due to weak corporate sentiment and the risk of China offloading excess capacity in the manufacturing sector.”
The report flagged concerns that companies are hesitant to invest in new projects, especially at a time when global conditions are becoming more uncertain. The U.S. administration’s recent move to impose higher tariffs is expected to have significant implications on global trade and economic growth.
What Else Did The Report Said?
The report estimates that if these tariffs remain in place, global trade volumes could shrink by as much as 7.5 percentage points.
The report highlighted that India’s goods exports could also suffer due to slower global growth. However, it noted that India is relatively better positioned compared to many of its Asian peers.
This is because India is less dependent on goods exports and has a strong base in services exports, which currently account for around 47% of the country’s total exports. These service exports could help cushion the blow from global trade disruptions.
The report has also revised its growth forecasts downward for major economies. The U.S. GDP growth projection for 2025 has been cut from 1.6% to 0.4%. Meanwhile, the impact of U.S. tariffs on China is expected to reduce the latter’s export growth by 5 percentage points and GDP growth by 1.5 percentage points. The ASEAN-5 nations could also see a 0.7 percentage point drop in their GDP growth.
Despite the external pressures, the report, however, believes that India’s macroeconomic fundamentals remain strong and that the country’s long-term growth story is still intact.
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