Fitch Ratings on Thursday slashed its forecast of India’s economic growth to 7% for FY23 from 7.8% announced earlier, citing elevated inflation and higher interest rates. It also cut the forecast for the next fiscal to 6.7% from 7.4%.
Releasing its latest Global Economic Outlook on Thursday, Fitch said the GDP growth of 13.5% in the June quarter, announced late last month, was below its expectation of 18.5%.
With this, Fitch joined a number of agencies that revised down their India forecasts after the June quarter GDP data were out. Moody’s trimmed its real growth forecast for the country to 7.7% for the calendar year 2022 from its earlier projection of 8.8%. Goldman Sachs, too, cut its 2022 growth forecast for India to 7% from 7.6%; for the fiscal year (FY23) as well, the projection is now pegged at 7%, against 7.2% earlier. Similarly, Morgan Stanley said there is a downside risk of 40 basis points to its growth estimate of 7.2% for FY23, thanks to weaker-than-expected growth in investments and higher drag from net exports. Citigroup has slashed its FY23 growth projection to 6.7% from 8%.
Fitch 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.”
Wholesale-price-based inflation hit a 11-month low of 12.41% in August, although retail inflation inched up to 7%, reversing a declining trend in the previous three months.
“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 three times since May by a total of 140 basis points to 5.4%. “We expect the RBI to continue raising, to 5.9% before year-end,” Fitch said.
While the central bank remains focused on curbing elevated inflation, it said its decisions would continue to be “calibrated, measured and nimble” and hinge on the unfolding dynamics of inflation and economic activity. Fitch expected policy rates to peak in near future and remain at 6% throughout the next year.
The rupee value will likely remain at 79 against the dollar (it closed at 79.73 on Thursday) by the end of 2022, while the retail inflation at around 6.2%, the agency said.
The agency also trimmed its forecast of global economic growth for 2022 by 50 basis points to 2.4% and highlighted that supply shocks and inflation are hitting the world economy hard. It also pegged 2023 global growth forecast at 1.7%, down 1 percentage point from than previous estimate.
“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. China’s recovery is constrained by the Covid-related curbs and a prolonged property slump, it said, predicting the country’s growth to slow down to 2.8% this year and recover to only 4.5% in 2023.