Global Trade Uncertainties Loom Over 2026: Economic Review Highlights Emerging Market Challenges

The Finance Ministry's November report flags growing uncertainties in global trade for 2026. It cites risks from elevated stock markets and strong US dollar pressures on emerging currencies. Despite challenges, India’s economic outlook remains cautiously optimistic with improved growth predicted for FY25's second half.

As the world anticipates another year, fresh uncertainties shadow the horizon of global trade for the financial year 2026, as clarified in the Finance Ministry's November economic review. The overview delineates evolving challenges like the erratic nature of global trade growth, towering stock markets, and currency volatility impacting emerging markets.

The report articulates, "As we peer into FY26, newer uncertainties unfold. Global trade growth appears more ambiguous than ever. Heightened stock markets continue to pose significant risks." It underscores how the potent US dollar combined with potential policy rate tweaks in the United States exerts pressure on emerging market currencies, compelling their monetary policymakers to reassess policy rate frameworks.

In addition, the recent flux in exchange rates has constrained policymakers' effectiveness in navigating their economic management. Sustaining growth amidst these constraints necessitates a synchronized endeavor among all economic stakeholders. Even amid these global tests, the report casts a cautiously hopeful projection for India, foreseeing improved growth in FY25's latter half, although recognizing structural impediments may have affected the slowdown noted in the first half.

It reveals, "Following a slack in Q2 of FY25, our projections for Q3 glimmer with promise, mirrored in October and November 2024's HFIs performance." The report identifies RBI's blend of monetary policy and macro-prudential measures as factors behind the demand slowdown. It praises RBI's decision to lower the cash reserve ratio (CRR) from 4.5 to 4 percent in December 2024, foreseeing this as a catalyst for reinforcing credit growth.

The review also highlights that FY25 experienced a significant deceleration in credit growth, asserting that the cut in CRR should help invert this trajectory. Persisting challenges notwithstanding, the report accentuates the necessity for India's economic players to steadfastly endeavor towards sustaining growth and maneuvering through uncertainties effectively. (ANI)

(With inputs from agencies.)