OECD raises India's growth outlook to 6.7% in 2025 over domestic demand, GST reforms

The Organisation for Economic Cooperation and Development (OECD) on Tuesday raised India's GDP growth by 40 bps to 6.7 per cent in 2025 from its earlier projection of 6.3 per cent in June, driven by strong domestic demand and robust GST reforms.

In India, higher tariff rates will weigh on the export sector, but overall activity is anticipated to be supported by monetary and fiscal policy easing, including the reform to the Goods and Services Tax, with growth projected to be 6.7% in 2025 and 6.2% in 2026, OECD said in a statement.

"Similarly, further monetary policy easing and strong public investment are expected to support the Indonesian economy, with annual growth of 4.9% projected for both 2025 and 2026."

Food price inflation has declined sharply in India, helped by strong domestic supply and export restrictions, it added.

India’s gross domestic product (GDP) surged to a five-quarter high of 7.8% in April-June period. To spur consumption, the GST Council approved a two-slab structure (5% and 18%) to reduce tax rates on household items, while in February the government announced that incomes up to Rs 12 lakh would be exempted from income tax.

Trade tensions with the United States pose a risk for India. The US imposed 50% tariffs on India, the highest levy alongside Brazil.

“India has been hit much harder than expected,” said S&P Global Ratings, adding that US tariffs on India have risen far more sharply than on most Asian economies, challenging its plans to expand its role in export-oriented manufacturing.

Still, resilient domestic demand is helping cushion the blow from weaker exports.

OECD's 2025 global growth forecast

Global economic growth is now expected to slow only slightly — to 3.2% in 2025 from 3.3% last year — compared to the 2.9% the OECD had forecast in June.

However, the Paris-based organisation kept its 2026 forecast at 2.9%, with the boost from inventory building already fading and higher tariffs expected to weigh on investment and trade growth.

"Additional increases in barriers to trade or prolonged policy uncertainty could lower growth by raising production costs and weighing on investment and consumption," OECD head Mathias Cormann told a news conference.

The OECD forecast U.S. economic growth would slow to 1.8% in 2025 — up from the 1.6% it forecast in June — from 2.8% last year before easing to 1.5% in 2026, unchanged from the previous forecast.

An AI investment boom, fiscal support and interest rate cuts by the Federal Reserve are expected to help offset the impact of the higher tariffs, a drop in net immigration and federal job cuts, the OECD said.

In China, growth was also seen slowing in the second half of the year as the rush to ship exports before the U.S. tariffs recedes and fiscal support wanes.

Nonetheless, China's economy is expected to grow 4.9% this year - up from 4.7% in June - before slowing to 4.4% in 2026 - revised up from 4.3%.

In the euro zone, trade and geopolitical tensions were seen offsetting the boost from lower interest rates, the OECD said.