Fitch Ratings Raises FY25 GDP Growth Forecast to 7% Due to Demand Surge
On Thursday, global rating agency Fitch Ratings increased India’s growth projection for the next fiscal year (FY25) to 7 percent from the previously estimated 6.5 percent, attributing it to strong domestic demand and continued growth in business and consumer confidence. Fitch also anticipates that growth for the current fiscal year will reach 7.8 percent, marginally surpassing the government’s own forecast of 7.6 percent.
“The primary growth catalyst, driven by robust levels of business and consumer confidence, will be domestic demand, particularly investment. Our projections suggest that short-term growth will exceed the economy’s estimated capacity, followed by a moderation in growth towards the trend in FY25, with real GDP anticipated to increase by 6.5 percent in FY26,” stated the rating agency.
“The outlook for emerging markets (excluding China) has improved, notably in India, where we anticipate growth to reach 7.8 percent in the fiscal year ending March 2024 and 7 percent in FY25, marking significant upward adjustments. Following three consecutive quarters of GDP growth surpassing 8 percent, we anticipate a slowdown in growth momentum in the final quarter of the current fiscal year,” it stated.
Fitch reduced its 2024 forecast for China to 4.5 percent from the previously estimated 4.6 percent, citing a worsening outlook for the property sector and increasing indications of deflationary pressures.
It further observed that consumer price inflation accelerated in the final months of 2023, primarily due to rising food prices. The Reserve Bank of India (RBI) has maintained its key policy rate at 6.5 percent and, in its communication, has emphasized its hawkish policy stance of “withdrawal of monetary accommodation” and the imperative to lower inflation towards the target level.
“Core inflation indicators are consistently decreasing, indicating that trends in food prices, which constitute about half of India’s consumer price index, will play a crucial role in inflation trends and the rate at which inflation will converge towards the RBI’s mid-point target of 4 percent within its 2-6 percent target band. We anticipate headline inflation to gradually decline to 4 percent by the end of the calendar year, assuming that recent fluctuations in food prices will diminish. We now anticipate that the RBI will reduce rates only in the latter half of 2024, by 50 basis points (revised from 75 bps in December), given the more robust growth outlook,” stated the rating agency.
Boosted by the government’s capital expenditure and robust domestic consumption, Moody’s Ratings, formerly known as Moody’s Investors Service, recently adjusted its growth projection for India for the calendar year 2024 to 6.8 percent, up from the previously estimated 6.1 percent.
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