Moody’s Analytics projects that India will continue to be the fastest-growing major economy in 2026 and 2027, but warns that its growth trajectory may decelerate due to a broader global economic slowdown, persistent geopolitical tensions, and volatile financial markets.
Photograph: Anushree Fadnavis/Reuters
Key Points
- Moody’s Analytics forecasts India will maintain its position as the fastest-growing major economy in 2026 and 2027, albeit at a slower pace.
- The global economy is projected to grow at 2.5 per cent in 2026 and 2.8 per cent in 2027, falling short of its 3 per cent-plus potential.
- The surge in demand for artificial intelligence (AI) has prevented a sharper global economic slowdown, driving investment and supporting equity valuations.
- Geopolitical risks, including the West Asia conflict and trade disruptions, are contributing to a ‘K-shaped’ world economy with uneven growth.
- Central banks face a dilemma between managing accelerating inflation and supporting economic growth, with rate hikes unlikely to resolve commodity flow disruptions.
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”.
Impact of AI and Geopolitical Risks
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 Analytics 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 West Asia 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.
Central Bank Challenges and Downside Risks
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.
