Fitch Ratings Raises India’s GDP Growth Forecast to 7.8% for FY 2023-24

Fitch Ratings Raises India's GDP Growth Forecast

VoM News Desk | March 14, 2024 | 12:34 PM IST | India, World | Follow on Google News

Fitch Ratings Raises India’s GDP Growth Forecast to 7.8% for FY 2023-24

Fitch Ratings Raises India’s GDP Growth Forecast to 7.8% for FY 2023-24

Fitch Ratings has predicted 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 the financial year 2023-24. This growth forecast is 20 basis points higher than the government’s estimate of 7.6 per cent.

India’s Economic Growth Outpaces Forecasts

India’s economic growth has continued to outperform forecasts, with real GDP rising by 8.4 per cent year-on-year in the October-December quarter, a much stronger increase than Fitch had expected. The Indian economy grew 7.8 per cent and 7.6 per cent during the preceding two quarters – April-June and July-September. The strength of domestic demand has driven the economy to a 7 per cent plus growth rate in the last three years. India’s economy grew 7.2 per cent in 2022-23 and 8.7 per cent in 2021-22, respectively.

Domestic Demand to Drive Economic Growth

For 2024-25, Fitch expects the Indian economy to continue its strong expansion, with real GDP forecast to increase by 7.0 per cent in 2024-25, a 0.5 percentage points upward revision from its December forecasts. Domestic demand, especially investment, will be the main driver of growth, amid sustained levels of business and consumer confidence.

Consumer Price Inflation Picks Up

Delving upon consumer price inflation, Fitch outlined how it picked up in the last months of 2023 driven by food prices. CPI inflation reached 5.7 per cent in December, before falling to 5.1 per cent in February. “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,” Fitch said.

RBI to Cut Rates in 2H24

The RBI has kept its key policy rate at 6.5%, and in its communication has focused on confirming its hawkish policy stance of “withdrawal of monetary accommodation” and the need to bring inflation down towards target. Fitch now thinks that the RBI will cut rates only in 2H24 and by 50bp (revised from 75bp in December) in view of the stronger growth outlook.

Retail Inflation in India

The retail inflation in India though is in RBI’s 2-6 per cent comfort level but is above the ideal 4 per cent scenario. Barring the recent pauses, the RBI has raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022 in the fight against inflation. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.

RBI’s Inflation Projections for 2024-25

At the latest monetary policy meeting, the RBI pegged India’s retail inflation projections for 2024-25 at 4.5 per cent, with Q1 at 5.0 per cent, Q2 at 4.0 per cent, Q3 at 4.6 per cent, and Q4 at 4.7 per cent, with risks evenly balanced.

Global GDP Growth Forecast Raised to 2.4% for 2024

Fitch Ratings has raised its 2024 global GDP growth forecast by 0.3 percentage points to 2.4 per cent in its latest Global Economic Outlook (GEO), arguing that the prospects for growth world over in the near-term have improved. This reflects a sharp upward revision to the US growth forecast to 2.1 per cent, from 1.2 per cent in the December 2023 estimates. The rating agency also revised upwardly the growth forecast for emerging markets excluding China by 0.1 percentage point to 3.2 per cent, with forecasts raised for India, Russia and Brazil. Fitch expects world growth in 2025 to edge up to 2.5 per cent (unchanged from before) as the eurozone finally recovers on a pick-up in real wages and consumption – but US growth slows.

VoM News Desk

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