After Fitch said last month that gradual implementation of the structural reforms is expected to contribute to higher growth, a latest report by the global firm says that India has highest medium-term growth potential among largest emerging markets. “ New estimates of supply-side potential GDP growth over the next five years highlight the importance of demographic factors and investment rates and place India at the top of the list among the ten largest emerging markets (EMs) covered in Fitch Ratings’ Global Economic Outlook (GEO) forecasts,” said the report.
According to Fitch, India’s projected potential growth is 6.7%, while China and Indonesia jointly rank second-highest, both with projected potential growth of 5.5% p.a. “The estimate for China represents a significant slowdown from recent historical average growth and reflects both a deteriorating demographic outlook and a slowdown in the rate of capital accumulation as the investment rate has declined. Broader measures of productivity growth in China have also slowed since the late 2000’s,” the report noted.
“Population dynamics are a key supply-side growth driver. For countries such as Mexico and Brazil, and to a less extent South Africa, population growth has been the main or the sole engine of GDP growth historically,” said Brian Coulton, Chief Economist at Fitch.
Apart from India, Indonesia, Mexico, Turkey and Brazil are set to see continued robust growth in the working-age population in the next five years, bolstering GDP growth potential.
In the same report, Fitch observed that India and, to a lesser extent, Turkey have also seen an impressive rate of capital accumulation per worker. In contrast, in Brazil, Mexico and South Africa, the growth in capital per worker has historically been much more muted. “This has weighed on the growth rate of living standards,” the report said.
Just last month, Fitch had noted that India’s growth has repeatedly been disappointing in the recent quarters. In October-17, Fitch Ratings had lowered India’s economic growth forecast for the current fiscal to 6.9 per cent from 7.4 per cent after the GDP growth “unexpectedly faltered” in the April-June quarter. However, the firm said that it expects GDP growth to pick up in the next two years.