India is likely to be the fastest growing economy of either advanced or emerging G-20 economies, due to its large domestic market which protects the economy from developments like US tariff changes.
In an emerging markets report, Moody's stated that India's economy enjoys relatively low external vulnerability, as evidenced by its external debt ratio against GDP of 19% and low dependence of exports to the US (only 2% of GDP). These provided resiliency against fluctuations in the global economy.
The report predicts India's GDP growth at 6.5% during 2025-26, the highest of G-20 economies. The good fortune of India's GDP is the combination of tax cuts and monetary policy not expected to tighten from the Reserve Bank of India (RBI) because of the falling inflation rate. Inflation is expected to be 4.5% in the current fiscal year as opposed to the previous year's 4.9%, which should allow for looser monetary policy and reduced interest rates with liquidity to promote growth.
Moody's notes that larger and more diversified emerging economies like India and Brazil hold a stronger position to attract capital and absorb potential cross-border financial outflows than smaller economies. These economies possess deep local capital markets and comfortable external vulnerability indicators.
On the other hand , smaller, more open economies are more vulnerable to changes in investor sentiment and currency volatility. Those that have a sizeable share of debt that is foreign currency-denominated, such as Argentina and Colombia, are even more at risk.
According to the report, although overall emerging market growth is forecast to decelerate slightly in 2025 - 26, it remains robust overall, albeit with some variation across regions. Asia-Pacific can be expected to continue to lead in growth, but its deep integration into global trade leaves it vulnerable to US tariff policies, which could slow down some of this economic momentum.
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