Mideast conflict: India’s growth to be lower at 5.9%, says Goldman Sachs
Virendra Pandit
New Delhi: Investment banking firm Goldman Sachs on Tuesday cut India’s growth forecast by 60 basis points to 5.9 percent for calendar year 2026.
This is the first forecast revision by any agency after beginning of the Iran war on February 28.
In its report, A Tighter Squeeze on Asia’s Energy Supply, the agency said: “New cuts to our growth forecasts are negligible in Japan, China, Korea, and Taiwan, but more than 0.5pp in India, Philippines, Thailand, and Singapore.”
The pre-Iran war forecast was 7 percent, which was lowered to 6.5 percent on March 13 and now further slashed to 5.9 percent, a media report said.
Although the agency did discuss the crude price scenario, but it considered whether quantity — rather than price — of gas proves to be the binding constraint on activity due to force majeure at key producers (i.e. Qatar Energy) sharply reducing the flow of energy in the near term.
“This seems a greater risk for LNG (given the higher difficulty of storage) than for oil in the near term, though either is possible,” it said.
The agency assessed potential shortage risks through two lenses – first, a country’s exposure to imported energy, with higher exposures implying more shortage risk.
Second, it ranked regional economies by per-capita income. “Our expectation is that higher-income countries (a) have more storage if they are net energy importers (e.g. Japan, Korea top the region in terms of oil reserves) and more importantly (b) can ‘bid away’ the marginal unit of energy over time from lower-income economies. We would therefore expect lower-income economies with larger imported energy needs to face the highest shortage risks,” it said while adding that Thailand and India stand out as lower per capita income economies with high energy imports.
Now, with higher crude prices, the expectation is that current account deficit (difference between payment received and made in US Dollar). “Our forecasts now imply 2026 current account deficits of 2% of GDP or larger for India, Indonesia, Philippines, and New Zealand,” the agency said. Inflation target for India is revised by 40 basis points to 4.6 percent.
Though it admitted that even after revision, the inflation within the RBI’s target band (2-6 per cent), currencies have been under depreciation pressure, and FX pass-through to retail prices is likely to be significant. “If the conflict reaches a durable resolution earlier than in our baseline, we think RBI and BSP (Bangko Sentral ng Pilipinas, the central bank of the Philippines) would be more likely to remain on pause, and look through the shock, rather than deliver hikes,” it said.
The Monetary Policy Committee under the Chairmanship of RBI Governor will meet earlier next week to review growth outlook, inflation and policy rates.
