Amid the risks of spillovers of Russia-Ukraine conflict, Fitch Ratings has cut India’s GDP forecast by 1.8% to 8.5% for 2023. It cited sharply higher energy prices for cutting the growth outlook. As the war in Ukraine and economic sanctions on Russia have put global energy supplies at risk, Fitch has lowered its forecast for global growth for 2023 by 0.2% to 2.8%. It said sanctions on Russian oil seem unlikely to be rescinded any time soon. This comes days after Moody’s trimmed its growth outlook for the world and cut growth outlook for India to 9.1% from 9.5% earlier for 2022. It also lowered the 2023 growth forecast for the country marginally to 5.4%.
While Fitch has lowered 2023 growth forecast, the rating agency has upped its GDP outlook for 2022 to 8.7% from 8.1% earlier. It said capital expenditure-led Budget, Reserve Bank of India’s accommodative policy and little damage on the Indian economy from the omicron wave have set the stage for GDP pickup. Though it sees war in Ukraine to impede that growth in coming days for emerging markets like India, that have high dependence on oil imports.
Global inflation back with vengeance
Inflation in the country could peak upto 7% in the third quarter this year, Fitch said, well above the Reserve Bank of India’s upper tolerance limit of 6%. It also expects inflation to remain elevated at 6.1% annual average in 2021 and 5% in 2022. CPI inflation in the country has been above 6% from the last two readings boosted by rising costs of food, fuel and household items. The high oil prices, which have been above $100 a barrel since Russia’s attack on Ukraine, can further exacerbate inflation.
“Global inflation is back with a vengeance after an absence of at least two decades. This is starting to feel like an inflation regime-change moment.” Brian Coulton, Chief Economist, Fitch Ratings said. These spillovers could pass on to net oil importers like India. India is largely affected by the crisis in Ukraine through the energy channel as it is a net oil importer and fluctuating oil prices makes it particularly vulnerable.
“Local fuel prices have been flat over the past weeks, but we assume that oil companies will eventually pass on higher oil prices to retail fuel prices (with some offset from a reduction in the excise duty by the government),” it added. Earlier on Tuesday, Petrol and diesel prices were hiked for the first time since November last year. Consumers will have to spend as much as 80 paise per litre more from today. Read more: Petrol and diesel price March 22: Fuel rates hiked first time in 2022; check prices in Delhi, Mumbai here