For India, the findings are relevant because weaker economic activity in major developed markets could affect demand for Indian manufactured goods, including engineering products, machinery and auto components. However, Goldman Sachs' estimates cover developed economies and do not directly quantify the impact on India's exports.
Business investment faces pressure
Goldman Sachs estimates that a 100-basis-point increase in interest rates could reduce business investment by an average of 1.8 per cent across developed markets. The impact could be larger in the Netherlands, Sweden and Germany, where investment could decline by 3.5 per cent, 3.1 per cent and 2.1 per cent, respectively.
Higher borrowing costs can prompt companies to delay factory expansions, equipment purchases and other capital expenditure. If European businesses scale back investment, Indian suppliers serving these markets could face slower order growth and pressure on revenue.
The risk is relevant to India's engineering goods sector, which has maintained strong export growth. Engineering exports rose 18.21 per cent year-on-year to $46.38 billion in the first quarter of FY27, compared with $39.24 billion a year earlier, according to the figures provided by industry body EEPC India.
The strong growth provides a base against which to assess the potential impact of weaker external demand. However, the available figures do not establish how much of India's engineering exports is directly linked to investment spending in the Netherlands, Sweden and Germany.
Consumer spending and housing could weaken
Higher interest rates can increase mortgage repayments and consumer credit costs, leaving households with less money for discretionary spending.
Goldman Sachs estimates that a 100-basis-point increase in rates could reduce consumer spending across developed markets by an average of 0.2 per cent. Australia, Sweden and Canada are among the economies facing larger effects through this channel.
Housing investment is another area of vulnerability. The report estimates that a 100-basis-point increase in bond yields could reduce US housing investment by around 8 per cent over the following one to two years.
Government debt adds to the pressure
Governments could also face higher interest expenses as existing debt matures and is refinanced at elevated rates. The impact would depend on the maturity structure of public debt and how quickly higher yields feed into borrowing costs.
The combined effect of these four channels could reduce developed-market GDP by 0.6 per cent over the following year, Goldman Sachs estimates.
For India, the key question is whether weaker investment and consumer demand in major export markets translate into slower export growth and earnings pressure for companies with significant overseas exposure. The estimates represent a modelled scenario based on a 100-basis-point rate increase, not a forecast that rates will necessarily rise by that amount.