NEW DELHI: India’s economy is expected to grow 6.4% in fiscal 2026-27, slowing from an estimated 7.5% expansion in FY26, as the West Asia conflict raises energy import costs, tightens financial conditions and adds fresh uncertainty to the global economy, according to a United Nations report released Wednesday.
The forecast, published in the mid-year update of the World Economic Situation and Prospects report by the UN Department of Economic and Social Affairs (UN DESA), is in line with last month’s assessment in the Economic and Social Survey of Asia and the Pacific 2026 by the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP).
in April projected India’s FY27 real GDP growth at 6.9%, saying that further escalation and wider spread of the conflict, heightened volatility in global financial markets and weather-related events weighed on the domestic growth outlook.
Despite the slowdown, the report said India remains one of the world’s fastest-growing major economies. Growth is projected to recover gradually to 6.6% in FY28.
The has delivered another shock to the global economy, slowing growth, reigniting inflationary pressures and heightening uncertainty, the report said, adding that for India, the impact is being felt through higher energy import costs and tighter financial conditions.
Global growth is now projected at 2.5% in 2026, 0.2 percentage points below the January forecast and well below pre-pandemic levels, the report said. A modest recovery to 2.8% is expected in 2027, supported by resilient labour markets, consumer demand and artificial intelligence (AI)-driven trade and investment in select economies. Still, the report warned that the downgrade reflects a further weakening of an already subdued global outlook.
The shock from the West Asia conflict is being felt most sharply in energy markets, intensifying cost pressures for households and businesses worldwide, the report said. The overall impact will depend on the duration of disruptions in energy markets, leaving the outlook highly uncertain and risks tilted to the downside.
The report also warned that the conflict has halted the trend that began in 2023. Inflation in developed economies is expected to rise from 2.6% in 2025 to 2.9% in 2026, moving further above central bank targets in most cases.
In developing economies, inflation is projected to accelerate more sharply, from 4.2% to 5.2%, as higher energy, transport and import costs erode real incomes and broaden price pressures across goods and services.
Food prices are another concern, the report said. Disruptions to fertilizer supplies are pushing up costs and could reduce crop yields, adding further pressure on food inflation.
The report said central banks now face a difficult trade-off: raising interest rates to contain inflation risks weakening growth further, while holding rates steady risks allowing price pressures to become entrenched.
While global financial markets have so far absorbed the initial shock in an orderly manner, higher energy prices have pushed up inflation expectations and short-term bond yields. For developing economies, that has tightened external financing conditions and weakened fiscal positions, particularly in countries with limited policy space.
“The Middle East (West Asia) crisis has intensified strains across developing economies,” said Li Junhua, United Nations’ under secretary general for Economic and Social Affairs. “Rising borrowing costs and renewed capital flow pressures risk deepening debt vulnerabilities and constraining the resources available for sustainable development at a critical moment.”
Beyond the immediate fallout from the conflict, the report also flagged weakening foundations for medium-term global growth.
“Global productivity growth has slowed since the global financial crisis, and current disruptions risk reinforcing this trend by dampening investment and trade flows. Across regions, widening gaps in capital accumulation, skills and innovation are contributing to increasingly uneven performance. Geopolitical fragmentation and constrained fiscal space risk further eroding productivity growth, entrenching existing divergences. Amid these headwinds, artificial intelligence offers significant potential but also poses considerable risks, with gains likely to be concentrated in a limited number of countries,” the report said.