Wednesday, December 7, 2022

Fitch maintains India's growth forecast for this fiscal year at 7%

Fitch retains India growth forecast at 7% for this fiscal

 Delhi, India: India's economic growth forecast was kept at 7% for the current fiscal year by Fitch Ratings, but its projections for the next two years were cut because the country is not immune to global developments.

Fitch predicted that India's GDP would grow at a rate of 7% in the current fiscal year, 6.2% in 2023-2024, and 6.9% in 2024-2025 in the December edition of its global economic outlook.

Fitch anticipated growth of 7% for the current fiscal year in September, followed by growth of 6.7% in 2023-2014 and 7.1% in 2024-2015.

Fitch anticipates GDP growth of 7% in the fiscal year ending March 2023 (FY23) in light of the stronger-than-anticipated performance in the July-September quarter.

It stated, "In our Fitch20 coverage this year, India is expected to record one of the fastest growth rates among emerging markets."

Separately, the World Bank raised India's GDP growth forecast for 2022-23 from 6.5% in October to 6.9% on Tuesday, stating that the country's economy was more resilient to global shocks.

In the fiscal year 2021–2022, the Indian economy expanded by 8.7%.

According to the global rating agency, India's economy is domestically focused, accounting for the majority of its GDP, so it is protected from global economic shocks to some extent.

"However, India is not immune to developments on a global scale. "Demand for Indian exports is expected to decrease as a result of the global economic slowdown," Fitch stated.

As central banks intensify their fight against inflation and the outlook for China's property market deteriorate, the agency also reduced its global GDP forecasts for 2023.

Fitch has revised down its 2023 forecast for global GDP growth from 1.7% in September to 1.4% now. As prospects for a recovery in housebuilding diminish, the growth forecast for China in 2023 has been lowered to 4.1% from 4.5% previously.

“As price pressures broaden and become more ingrained, taming inflation is proving to be more challenging than anticipated. The gloves are now off for central bankers. That won't be good for growth, according to Brian Coulton, Chief Economist at Fitch Ratings.

Fitch stated that monetary policy tightening and high inflation have also slowed imports, slowed personal loan growth, and reduced purchasing power in India. Demand for capital goods is also being affected by tighter financial market conditions, which is a good sign for investment.

Fitch added, "That being said, upbeat labor market conditions, with unemployment easing and labor participation improving, reflect economic resilience."

According to Fitch, household inflation expectations remain high as food price inflation remains elevated, even though inflation eased to 6.77 percent in October. However, core inflation edged up again after cooling over the summer.

Given that imports make up a third of the CPI basket, it stated, "Weakness in the rupee against the US dollar is adding to inflationary concerns at the RBI."

Since the beginning of the tightening cycle in April 2022, the RBI has raised rates by a cumulative 190 basis points, trailing the Fed's 350 basis point increases over the same time period.

"The Reserve Bank of India (RBI) has already intervened to support the rupee, and additional rate increases are likely to support the currency and reduce underlying inflationary pressure." Fitch stated, "We now expect the RBI to raise policy rates to 6.15 percent by December and then maintain this rate through 2023."

On December 7, the RBI's monetary policy committee is expected to raise the benchmark interest rate from 5.90 percent.

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