India likely to grow notably in 2025 with some moderation: BNP Paribas

India enjoys several structural drivers that will drive a rise in gross domestic product (GDP) over the long term. These include favourable demographics, improved governance, and high-value-added sectors contributing a larger share of economic activity, BNP Paribas said.

Indian inflation is expected to edge lower in 2025, supported by adequate rainfall and a robust winter crop that will ease inflationary pressure from food prices. A trade war between the US and China could also have a disinflationary effect in India, as it could result in China redirecting cheaper exports to alternative countries, it noted.

BNP Paribas expects most of Asia’s central banks to cut rates two or three times this year. The depth of the cuts will depend on the specific circumstances of each economy, it noted.

Subdued domestic demand, potential disruptions to global trade and limited room for fiscal stimulus all combine to make looser monetary policy an attractive option for policymakers in the region.

But at the same time, the decision to further lower rates will be complicated by a challenging external environment.

The Philippines is likely to deliver a cut of 75 basis points (bps), adding to a cumulative 75 bps reduction in the policy rate over the previous three meetings. Monetary policy in the Philippines is moving more independently from the US Federal Reserve than its regional peers, as concerns over domestic growth and inflation considerations are taking precedence for the central bank, BNP Paribas said in a note.

It expects just a 25 bps cut in Thailand, even though the outlook for the local economy is weak. Last year’s disbursement of THB145 billion ($4.3 billion) failed to boost consumption, banks are cautious to lend and the country’s heavy reliance on exports makes it vulnerable to disruptions in global trade, it said.

Among the economies that are expected to keep rates steady is Malaysia, where robust growth will be accompanied by modest inflationary pressures. The economy is firing on all cylinders, which means that although exports may suffer in a world of growing protectionism, domestic demand and investment flows will be able to pick up the slack.

Throughout 2025, Asian economies will have to handle high levels of unpredictability in the trade outlook. Much of the uncertainty comes from US President Donald Trump’s threat to impose tariffs on a number of its major trade partners.

Even economies not directly targeted by these measures may face lower export demand due to the tariffs. The trade barriers will have a ripple effect along entire supply chains, as US demand for Chinese goods weakens and Chinese producers reduce purchases of both foreign and domestic inputs, BNP Paribas noted.

The indirect exposure of Asian economies to US tariffs on Chinese goods can be assessed by looking at the value-added content of foreign inputs in Chinese exports to the US. By this measure, Taiwan, Malaysia, and Singapore are the most exposed.

But if the US imposes tariffs directly on a broader range of economies, the impact will be much greater for export-dependent economies like Taiwan, Vietnam and South Korea, where exposure to US tariffs would be 9.7 per cent, 9.6 per cent and 6.2 per cent of GDP respectively.

Countries like India and the Philippines that have the most domestically focused economies will be much less exposed.

ALCHEMPro News Desk (DS)