UBS Downgrades India's FY27 GDP Growth Forecast to 6.2% Amid Oil Price Shock and Weak Monsoon

India's Economic Growth Forecast Revised Downward Due to Ongoing US-Iran War and Energy Shock

The ongoing US-Iran war and resulting energy shock, supply chain disruptions, and elevated inflation are expected to weigh on India's economic growth in FY27, according to a revised forecast by UBS. The global brokerage has lowered its India GDP growth forecast to 6.2% for FY27, down from its earlier estimate of 6.7%. This downward revision is based on higher crude oil prices, supply-side disruptions, and expectations of a below-normal monsoon.

UBS's baseline assumptions include the Indian crude oil basket averaging $100 per barrel in FY27. The brokerage notes that the energy shock has extended beyond crude oil to refined products, shipping, and broader supply chains, raising the risk of non-linear spillovers to both global and domestic economies.

India Meteorological Department (IMD) Projects Sub-Normal Monsoon

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The India Meteorological Department (IMD) has projected a sub-normal monsoon, with rainfall during the June-September period expected at 92% of the long-period average, the lowest first long-range forecast in at least 26 years. The weather agency has also assigned a 35% probability to a 'deficient' monsoon, higher than the likelihood of 'sub-normal' rainfall, underscoring elevated downside risks.

Economic Momentum Shows Signs of Moderation

UBS observed that India's economic momentum had already begun to ease in March, with manufacturing activity weakening, core sector growth slowing, and fertiliser production contracting sharply due to gas shortages and rationing. The brokerage outlined two alternative scenarios, both assuming weak monsoon conditions:

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Under the upside scenario, India's GDP growth could recover to around 6.5% year-on-year. However, in the downside scenario, growth could slow more sharply to 5%-5.5%.

Rate Hikes Back on the Table

UBS now expects headline CPI inflation to average 5.2% year-on-year in FY27, revised up from its earlier estimate of 4.6%, and significantly higher than the 2.1% level seen in FY26. Even if the geopolitical conflict eases, UBS believes inflation risks are likely to persist longer than growth risks. Against this backdrop, the brokerage expects the RBI's Monetary Policy Committee (MPC) to gradually shift towards rate hikes in the second half of FY27, moving away from its earlier expectation of a prolonged pause.