The US-headquartered ratings agency expects gross domestic product (GDP) growth to recover to 7.2% in 2027-28.
S&P’s baseline forecast assumes that disruptions in the Strait of Hormuz will gradually ease during the second half of the year. While global oil prices are expected to remain elevated in the near term, they are projected to decline gradually and return to pre-Iran war levels by early 2028.
However, a prolonged energy disruption would be unfavourable for the Asia-Pacific region.
Higher energy costs would increase the prices of goods and services, pushing inflation in China, India and Japan up 0.5-0.6 percentage points in the third quarter of 2026. In addition, weaker purchasing power, lower capital expenditure and adverse wealth effects would weigh on economic growth.
“GDP growth would be 1.0-1.3 ppts lower in China, India and Japan in the third quarter of 2026, with year-average growth 0.5-0.6 ppts higher,” S&P Global Ratings said.
Retail inflation in India is forecast to rise to 5.1% in 2026-27 as manufacturers pass on higher energy costs to consumers, alongside recent increases in administered prices such as those for petrol, diesel and cooking gas. S&P expects it to ease to 4.7% in 2027-28.India’s retail inflation rose to 3.93% year-on-year in May from 3.5% in April.
The ratings agency also expects a policy rate hike to 5.5% in the second half of this fiscal. The Reserve Bank of India kept the policy rate unchanged at 5.25% in the June monetary policy meeting.
For China, S&P maintained its growth forecast at 4.4%, citing weaker demand offset by stronger export momentum. Japan’s economy is estimated to grow by 0.6% in 2026, while Singapore is expected to grow by 3.9%.