Fitch raises India’s growth forecast for next fiscal to 7% – Times of India

by The Technical Blogs


NEW DELHI: Rating agency Fitch raised its forecast for India’s economic growth on Thursday, projecting a 7 per cent expansion in the next fiscal year starting on April 1 on the back of strong domestic demand and a sustained level of business and consumer confidence, with 8.4 per cent growth in gross domestic product (GDP) during the third quarter of current fiscal year.
Fitch saw the Indian economy growing by 7.8 per cent in the 2023-24 fiscal year, slightly above government’s 7.6 per cent forecast.
In its latest ‘Global Economic Outlook’, the agency said that the country’s economic growth has consistently outperformed quarterly forecasts, with increase in investment growth by 10.6 per cent year-on-year and private consumption rising by 3.5 per cent.
Globally, Fitch Ratings has raised its 2024 global GDP growth forecast to 2.4 per cent due to improved near-term world growth prospects.
This revision is primarily driven by an increase in the US growth forecast to 2.1 per from, 1.2 per cent in the December 2023 Global Economic Outlook (GEO).
“Stronger US growth prospects outweigh a marginal cut to our China 2024 growth forecast — to 4.5 per cent from 4.6 per cent — and a minor revision to our eurozone forecast, to 0.6 per cent from 0.7 per cent,” it said.
“Growth in emerging markets, excluding China, has been revised up by 0.1 percentage point to 3.2 per cent, with forecasts raised for India, Russia and Brazil.”
Looking ahead to 2025, global growth is expected to reach 2.5 per cent, with the eurozone’s recovery playing a crucial role in real wages and consumption, but the US growth slows.
For India, Fitch Ratings said, “With GDP growth having exceeded 8 per cent for three consecutive quarters, we expect an easing in growth momentum in the final quarter of the current fiscal year, implying an estimate of 7.8 per cent for growth in FY24.”
The agency shows that recent data indicates a faster rise in GDP compared to gross value-added, suggesting a possible normalization of this gap. Strong business survey data for January and February pose an upside risk to these growth estimates, it said.
“We expect the Indian economy to continue its strong expansion, with real GDP forecast to increase 7 per cent in FY25, a 0.5 percentage point upward revision from our December forecasts,” Fitch Ratings said.
“Domestic demand, especially investment, will be the main driver of growth, amid sustained levels of business and consumer confidence.”
The latest forecasts suggest that in the coming months, economic growth will exceed the estimated potential, but will gradually ease towards a more sustainable level by FY25, with a 6.5 per cent increase in real GDP.
Recent data shows a rise in consumer price inflation, mainly due to higher food prices. In December, the Consumer Price Index (CPI) inflation stood at 5.7 per cent year-on-year, dropping to 5.1 per cent by February.
However, core inflation indicators are on a downward trend. The movement of food prices, which make up about half of India’s CPI, will play a crucial role in shaping inflation and its convergence towards the Reserve Bank of India’s 4 per cent mid-point of its 2 per cent-6 per cent target band.
“We expect headline inflation to steadily decrease to 4 per cent by calendar year-end on the assumption that recent food price volatility will subside,” it said.
The RBI has kept its key policy rate unchanged at 6.5 per cent. It maintains a hawkish policy stance, of “withdrawal of monetary accommodation” and the need to bring inflation down towards target.
“We now think that the RBI will cut rates only in the second half of 2024, by 50 basis points (revised from 75 basis points in December) in view of the stronger growth outlook,” it added.
(With inputs from agencies)


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