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Fitch cuts India’s FY23 GDP growth forecast to 7%; high inflation, policy tightening dampen economic prospects

Fitch Ratings on Thursday slashed its India’s economic growth (GDP) forecast for the current fiscal to 7 per cent from the previous estimate of 7.8 per cent.

Fitch cuts India’s FY23 GDP growth forecast to 7%; high inflation, policy tightening dampen economic prospects
Indian economic growth to slow down given the global economic backdrop, elevated inflation and tighter monetary policy

Fitch Ratings on Thursday slashed its India’s economic growth (GDP) forecast for the current fiscal to 7 per cent from the previous estimate of 7.8 per cent. The global ratings agency expects the economy to grow 7 per cent in 2022-23, with the next financial year also slowing to 6.7 per cent from the earlier estimate of 7.4 per cent. “The (Indian) economy recovered in 2Q22 with growth of 13.5 per cent year-on-year, but this was below our June expectation of an increase of 18.5 per cent. Seasonally adjusted estimates show a 3.3 per cent quarter-on-quarter decline in 2Q22 though this seems to be at odds with high-frequency indicators,” Fitch said.

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It expects the Indian economic growth to slow down given the global economic backdrop, elevated inflation and tighter monetary policy. In its report, Fitch noted that the European gas crisis, high inflation and a sharp acceleration in the pace of global monetary policy tightening are taking a heavy toll on economic prospects. It has cut growth forecasts sharply and widely since the June Global Economic Outlook (GEO). Fitch now expects the world GDP to grow by 2.4 per cent in 2022, down 0.5 per cent from previous estimates. In 2023, the ratings agency sees world GDP growth at just 1.7 per cent. The Eurozone and UK are expected to enter recession later in 2022 and the US is expected to suffer a mild recession in mid-2023. 

“We forecast that US and Eurozone growth in annual terms will be quite close to 0 per cent next year, roughly in line with the downside stagflation scenario we set out in the March GEO and elsewhere,” it said. China’s recovery is constrained by Covid-19 pandemic restrictions and a prolonged property slump. We now expect growth to slow to 2.8 per cent this year and recover to only 4.5 per cent next year.

Earlier this month, Moody’s Investors Service also sharply cut India’s GDP growth forecast for 2022 to 7.7 per cent. It said that rising interest rates, uneven monsoon, and slowing global growth will affect the economic growth on a sequential basis. In May this year, it had projected India’s GDP to rise 8.8 per cent in 2022. The credit rating agency also trimmed the country’s GDP forecast for the next year 2023 to 5.2 per cent from 5.4 per cent projected earlier. The economy expanded at 8.3 per cent in the previous year 2021, after contracting 6.7 per cent in 2020 when the pandemic had hit the country.

“Our expectation that India’s real GDP growth will 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 assumes that rising interest rates, uneven distribution of monsoons, and slowing global growth will dampen economic momentum on a sequential basis,” the credit agency said. In its update to Global Macro Outlook 2022-23, Moody’s said that the Reserve Bank of India (RBI) may remain hawkish this year and maintain a a reasonably tight policy stance in 2023 to contain domestic inflationary pressures.

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Earlier Citigroup Inc also sharply cut its growth projection to 6.7 per cent for the fiscal year to March 2023, from 8 per cent project previously, while Goldman Sachs Group revised it downwards to 7 per cent from 7.2 per cent earlier, after data showed India’s gross domestic product grew less than expected in the last quarter. Deutsche Bank said slow growth may prompt the RBI to ease the quantum of rate hikes. “RBI will lower its 7.2 per cent GDP estimate for the current fiscal in its next monetary review on September 30,” said Deutsche Bank economist Kaushik Das in a note.

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