Fitch Ratings on Thursday slashed its projection of India’s economic growth to 7 per cent for current fiscal year, citing elevated inflation levels and higher interest rates.
Fitch, which had in June projected India’s GDP to grow by 7.8 per cent in 2022-23, also forecast a slowdown in growth to 6.7 per cent in FY24 from its earlier estimate of 7.4 per cent.
In its Global Economic Outlook September 2022 released on Thursday, the rating agency said the GDP growth of 13.5 per cent in April-June, as per official data, was below its June expectation of 18.5 per cent increase.
“We expect the economy to slow given the global economic backdrop, elevated inflation and tighter monetary policy,” it said.
“Inflation moderated in August as crude oil prices eased, but the risk to food inflation persists given negative seasonality towards the end of this year.”
The wholesale-price-based inflation softened to 11-month low of 12.41 per cent in August, even though retail inflation inched up to 7 per cent.
Fitch joins other agencies who have downgraded India’s economic growth forecast following a below-expected 13.5 per cent expansion in April-June (the first quarter of current fiscal year).
Moody’s Investors Service expects India’s GDP growth to slow from 8.3 per cent in 2021 to 7.7 per cent in 2022 and to decelerate further to 5.2 per cent in 2023. In March, Moody’s had forecast that India’s economy could expand at 8.8 per cent in 2022.
Citigroup has sharply cut its FY23 growth projection to 6.7 per cent from 8 per cent earlier while Goldman Sachs revised it to 7 per cent from 7.2 per cent.
SBI expects 6.8 per cent growth from April 2022 to March 2023 (FY23) and India Ratings and Research (Ind-Ra) pegs it at 6.9 per cent.
The Reserve Bank of India (RBI) expects the economy to grow 7.2 per cent in current fiscal year.
Fitch said core inflation, which excludes food, fuel and light, remained elevated at 6 per cent while inflation expectations have also stayed high.
The RBI’s latest survey of household inflation expectations eased in July, but expectations are still far above pre-pandemic levels. Destabilising inflation expectations could risk triggering second-round effects.
“While the RBI expects monthly inflation data to be volatile in the near term, its expectation is for consumer price inflation (CPI) to ease towards the end of the year,” it said.
The RBI has raised its benchmark repo rate by 140 basis points since May, including 50 basis points last month, to 5.4 per cent.
“We expect the RBI to continue raising, to 5.9 per cent before year-end,” Fitch said. “The RBI remains focused on reducing inflation, but said that its decisions would continue to be ‘calibrated, measured and nimble’ and dependent on the unfolding dynamics of inflation and economic activity.”
The rating agency expected policy rates to peak in the near future and to remain at 6 per cent throughout next year.
The US-based agency said it expects the rupee value to remain at 79 against the US dollar by the end of 2022, while the retail inflation at around 6.2 per cent.
It said supply shocks and inflation are hitting the world economy hard and expects the world GDP to grow by 2.4 per cent in 2022 revised down by 0.5 percentage points.
In 2023, the world GDP will grow by just 1.7 per cent, 1 percentage points lower than previous estimates.
“The eurozone and UK are now expected to enter recession later this year and the US is expected to suffer a mild recession in mid-2023,” Fitch said.
On China, it said the recovery is constrained by the pandemic restrictions and a prolonged property slump while projecting growth to slow to 2.8 per cent this year and recover to only 4.5 per cent next year.
“We’ve had something of a perfect storm for the global economy in recent months, with the gas crisis in Europe, a sharp acceleration in interest rate rises, and a deepening property slump in China, said Brian Coulton, Chief Economist, Fitch Ratings.