Economic analyses from major banks indicate a cooling of growth momentum in the Asia-Pacific region, with both India and Australia facing headwinds that may prompt shifts in monetary policy. DBS Group Research projects a moderation in India’s economic trajectory during early 2026, citing a mix of global and domestic pressures. United Overseas Bank (UOB) similarly notes that Australia’s expansion has lost steam, driven by cooling demand and the lagged effects of rate hikes.
India’s growth expected to decelerate
Singapore-based DBS economists point to persistent global inflation, tighter monetary conditions in advanced economies, and a normalization of domestic consumption as factors that will temper India’s GDP expansion. While exact growth figures were not provided, the report emphasizes a clear deceleration from the robust pace of 2024 and 2025. Weaker export demand from Europe and parts of Asia, along with the lingering impact of the Reserve Bank of India’s past interest rate increases, are expected to compress credit growth and investment appetite in early 2026.
Australia’s demand cools, rate cuts priced in
UOB’s analysis reveals that Australia’s economic momentum has weakened more than anticipated, with high-frequency indicators like retail sales and business investment signaling a loss of forward thrust. The Reserve Bank of Australia’s aggressive tightening cycle has dampened domestic demand, and GDP growth is projected to fall below trend in the second half of 2025. Markets are now pricing in a higher probability of rate cuts in early 2026, though the central bank has remained cautious due to persistent services inflation.
Implications for markets and policy
The emerging narrative of slowing growth could lead to a reassessment of equity valuations in sectors sensitive to domestic demand, while bond markets may rally on expectations of more accommodative central bank stances. For policymakers, the challenge is to balance inflation concerns against the need to support economic activity. Both the RBI and RBA face a delicate balancing act as they navigate external risks.
