Fitch Ratings has slashed its growth forecast for India for the current fiscal year to 7% from the previous estimate of 7.8%.
The ratings agency has also cut its GDP growth forecast for the next fiscal year to 6.7% from the earlier estimate of 7.4%.
Fitch’s latest growth estimate for FY23 is lower than the Reserve Bank of India’s (RBI) forecast of 7.2%.
“The economy recovered in 2Q22 (April-June) with growth of 13.5%, but this was below our…expectation of an increase of 18.5%,” Fitch said in an update to its Global Economic Outlook report.
“Seasonally adjusted estimates show a 3.3% quarter-on-quarter decline in 2Q22 though this seems to be at odds with high-frequency indicators,” Fitch added.
A favourable base effect helped propel Indian GDP growth to 13.5% in April-June. However, not only was this lower than Fitch’s expectations, it was also lower than the RBI’s forecast of 16.2%.
While the April-June GDP data disappointed, going ahead, Fitch expects the Indan economy to slow down given the global economic backdrop, elevated inflation, and tigthening of monetary policy.
As part of the update to its Global Economic Outlook report, Fitch also cut its global growth forecast, citing the European gas crisis, high inflation, and a sharp acceleration in the pace of global monetary policy tightening.
Fitch now expects the global economy to grow by 2.4% in 2022, down from 2.9% previously. In 2023, growth is seen at 1.7% as against the previous forecast of 2.7%.
“The latest GEO (Global Economic Outlook) forecast assumes a full or near-complete shut-off of Russian pipeline gas to Europe. Despite EU (European Union) efforts to find alternatives, total gas supply to the EU will fall significantly in the near term, with the impact felt through industrial supply chains. This would be exacerbated if rationing became necessary to avoid outright gas shortages, a key risk in Germany,” Fitch said.
The agency sees the eurozone and UK entering a recession later this year, with the US expected to suffer a “mild recession” in mid-2023.
In terms of numbers, Fitch expects the eurozone economy to contract by 0.1% in 2023, down from a growth of 2.1% forecast earlier.
The US, meanwhile, is seen growing 1.7% in 2022 and 0.5% in 2023, following downward revisions of 120 basis points and 100 basis points, respectively.
China too is seen slowing down appreciably, with the world’s second largest economy seen growing by a mere 2.8% in 2022, down from 3.7% projected earlier, due to Covid-19 pandemic restrictions and a prolonged property slump.
“Housing activity directly accounts for about 14% of GDP and has strong multiplier impacts on the other industries. Previous property down turns have prompted significant credit easing, but this looks conspicuously absent at the current juncture,” Fitch noted.
In 2023, China’s GDP is expected to grow 4.5%. In June, Fitch had pegged the number at 5.3%.
Commenting on Indian monetary policy, Fitch said it expects the RBI to keep increasing the repo rate in the coming months and take it to 5.9% before the end of the year.
“The RBI remains focused on reducing inflation, but said that its decisions would continue to be ‘calibrated, measured and nimble’ and dependent on the unfolding dynamics of inflation and economic activity. We therefore expect policy rates to peak the near future and to remain at 6% throughout next year,” the ratings agency added.
