Goldman Sachs upgrades India growth outlook as easing Gulf tensions cool oil risks
India’s economic outlook has improved materially following the US-Iran peace deal, with lower crude oil prices reducing inflationary pressures, easing fiscal risks and strengthening the
India’s economic outlook has improved materially following the US-Iran peace deal, with lower crude oil prices reducing inflationary pressures, easing fiscal risks and strengthening the country’s external balances, according to a new research note by Goldman Sachs. The investment bank has raised its calendar year 2026 gross domestic product (GDP) growth forecast for India by 30 basis points to 6.8%, while lowering its inflation projection by 20 basis points to 4.4% and trimming its current account deficit estimate from 1.3% to 1.1% of GDP. The upgrade comes after India weathered the Middle East conflict better than expected, aided by fiscal and quasi-fiscal measures that absorbed a significant portion of the energy price shock and limited the pass-through of higher fuel costs to consumers, the note said. “India’s real GDP growth has held up better than our earlier expectations,” Goldman Sachs said, noting that the economy expanded 7.8% year-on-year in the first quarter of CY26, about 50 basis points above its earlier forecast.
Also Read | Crude oil prices fall as shipments through Strait of Hormuz resume Investments, services resilient This stronger-than-expected growth was led by resilient investment activity and robust services sector performance, said the note. Gross fixed capital formation rose to a si quarter high of 10.8% year-on-year during the quarter, supported by healthy automobile production and stronger imports of investment goods despite supply-chain disruptions linked to the Gulf conflict. Goldman Sachs said the recent US-Iran agreement has significantly reduced downside risks to the economy by lowering crude prices and easing supply constraints that had weighed on investment activity. High-frequency indicators are already showing signs of recovery, with port cargo traffic growth touching a four-month high in May after weakening during March and April. While it expects household consumption to remain under pressure during the second and third quarters because of fuel price hikes, it believes the drag will fade after that. Lower oil prices have reduced the likelihood of more increases in petrol and diesel prices, limiting any further hit to consumer spending, it said.
The investment bank, however, said weather-related uncertainties including IMD forecasts of heatwaves remain a near-term headwind, particularly to rural consumption growth. The report also highlighted continued strength in India’s services sector. Services gross value added expanded 9.9% year-on-year in the first quarter, driven by trade, hotels and transportation. Manufacturing, while somewhat moderated by weaker chemical and metals output, continued to benefit from strong automobile production, it said. Another key beneficiary of the easing geopolitical situation is the government’s fiscal position, according to Goldman Sachs. It said the sharp correction in global urea prices has significantly reduced the risk of a spike in fertilizer subsidies. Recent import tenders have been awarded at prices substantially below those prevailing during the peak of the Middle East conflict. Combined with lower crude prices, this could ease pressure on the Centre’s expenditure commitments and create greater fiscal room during FY27. Lower inflation forecast The improved outlook has also prompted Goldman Sachs to lower its inflation forecasts.
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