ICRA Forecasts Economic Slowdown in Q2 FY26 with Strong Industrial Backbone

Rating agency ICRA projects India's GDP growth to slow down to 7% in Q2 FY26 from 7.8% in Q1, amid reduced government spending. While services and agriculture sectors may lose pace, industrial sectors like manufacturing, buoyed by favorable conditions, are expected to support economic activity.

ICRA, the prominent rating agency, has forecasted a moderation in India's GDP growth to 7% for the July-September quarter of FY26, down from 7.8% in the previous quarter, primarily due to diminished government expenditure.

Despite potential slowdowns in the services and agriculture sectors during the second quarter, industrial performance is expected to remain robust. This resilience will be driven by manufacturing and construction activities, alongside favorable base effects, according to ICRA's analysts.

Aditi Nayar, ICRA's chief economist, noted that while reduced government spending could impact GDP and GVA growth, factors like festive season inventory stocking, increased manufacturing due to GST policy changes, and export advancements to the U.S. are predicted to bolster industrial growth in this period.

(With inputs from agencies.)