Global Economy to Grow by 3.2% in 2025 Despite Trump's Tariffs
Global Economy Faces Challenges, but India Shines
The global economy is facing a tough time, with major countries battling economic slowdowns. The new tariff policies introduced by former U.S. President Donald Trump have led to inflation in the U.S., Europe's economy is on the brink of stagnation, and China's growth rate has fallen. The global GDP growth rate is expected to drop to 2.3% in 2025, the weakest since the 2008 recession. However, amidst this storm, India is showing remarkable performance. India’s GDP growth in the July-September quarter (Q2 FY26) reached 8.2%, the highest in six quarters, surpassing earlier projections (7.2%). Let’s dive into the reasons behind this stellar growth.
IMF's Report and Global Economic Forecast
According to the latest report from the International Monetary Fund (IMF), global GDP growth is expected to slow down to 3.2% in 2025, compared to 3.3% in 2024. The reason? The "America First" tariff policies introduced by Donald Trump have increased tariffs on major economies like India and Brazil, raising them by as much as 50%. As a result, U.S. growth has been limited to 1.8%, with a 40% chance of recession.
Europe's situation is even worse. Germany's economy has contracted by -0.2% due to an energy crisis and weak exports. China's growth is stagnating at 4%, grappling with a real estate crisis and weak domestic demand. The United Nations Conference on Trade and Development (UNCTAD) reports that trade uncertainties are at historical highs, which could lead to a 40% drop in global trade by 2025.
India's Surprising Economic Growth
Despite the global economic downturn, India is witnessing an economic boom. According to the National Statistical Office (NSO), India’s real GDP growth in Q2 FY26 stood at 8.2%, with the Gross Value Added (GVA) growth at 8.1%. This is the highest growth recorded in the past six quarters. Earlier, the highest growth was 8.4% in the January-March quarter of FY 2023-24. This remarkable growth has kept India as the fastest-growing major economy in the world, with China’s growth being just 4.8%. India’s economy grew by 8% in the first half of FY 2025-26, compared to 6.1% in the same period last year.
Key Drivers of India's Growth
Rural Demand Boost
40% of India's consumption demand comes from rural areas. A strong monsoon in 2025 (106% average rainfall) has boosted agriculture, with food grain production growing by 5%. This resulted in record sales of tractors in October and a 51.8% increase in rural two-wheeler sales. Rural FMCG sales also grew by 12% according to NielsenIQ data. This is ‘bottom-up’ growth: if farmers are richer, the markets flourish.
Government Spending Engine
The central government has spent 24.5% of its capital expenditure (capex) budget in Q1, more than double last year’s 16.3%. Investments in highways, railways, and ports have led to a 7% growth in the construction sector. The IMF says this infrastructure push has created jobs and increased incomes.
Manufacturing Surge
The Manufacturing PMI reached 59.2 in October, higher than 57.5. The ‘Make in India’ and PLI schemes have boosted the smartphone, auto, and electronics sectors. Production and new orders have surged despite U.S. tariffs. Exports grew by 6.3%.
Digital Services Boom
IT and consulting exports contribute 10% to GDP. Digital India has boosted UPI transactions by 50%. The service sector’s growth has been double (above 10%), even amidst the global slowdown.
Other Key Insights
The manufacturing sector showed robust growth of 9.1% in the last quarter, compared to just 2.2% growth in the same quarter last year. However, agriculture showed weak performance with a 3.5% decline, compared to a 4.1% increase last year. In Q2 FY26, GDP at constant prices stood at ₹48.63 lakh crore, and at current market prices, it was ₹85.25 lakh crore. For the first half of FY26, GDP grew by 8% at constant prices and 8.8% at current prices.
Growth Exceeds Expectations
Real Private Final Consumption Expenditure (PFCE) grew by 7.9%. Gross Fixed Capital Formation grew by 7.3%. The Q2 GDP figures show a significant difference of ₹1.62 lakh crore between various calculation methods. Rating agency ICRA’s chief economist Aditi Nayar mentioned that the growth rate in Q2 exceeded expectations, reducing the likelihood of rate cuts in December 2025.
Challenges Ahead
Despite strong growth, challenges remain due to U.S. tariffs and limited fiscal space for capital expenditures. However, economists predict that India’s real GDP growth will remain above 7% in FY2025-26. Experts also believe that GST reforms and festive purchases in Q3 will boost economic activity further.
New GDP Calculation Methodology
CRISIL's chief economist, Dharmakirti Joshi, pointed out that the new base year of 2022-23 for GDP calculation will provide a better picture of the economy, although it may cause slight variations in current estimates. The Ministry of Statistics and Programme Implementation is set to revise economic data using 2022-23 as the new base year.