Fitch Ratings, a leading provider of credit ratings, commentary and research for global capital markets, cut down growth forecast for the Indian economy to 7% in 2022-23 from 7.8%. The agency also slashed growth forecast for 2023-24 to 6.7% from 7.4% projected before.
Global growth forecast was also slashed to 2.4% for 2022 from 2.9% by Fitch Ratings. The major reasons for cutdown in global forecast are European gas crisis, high inflation and a sharp acceleration in the pace of global monetary policy tightening that is taking a heavy toll on economic prospects, The Hindu reported.
In its latest global economic outlook, the ratings agency said: “The eurozone and UK are now expected to enter recession later this year and Fitch forecasts that the US will suffer a mild recession in mid-2023.”
On India recording a 13.5% growth in the April to June quarter, Fitch Ratings said this was below its expectation of an 18.5% rise is growth. Citing improvements in Purchasing Manager Indices and industrial growth through the quarter, the agency noted: “Seasonally adjusted estimates show a 3.3% quarter on quarter decline though this seems to be at odds with high-frequency indicators.”
“The manufacturing PMI index also recovered strongly in July and remained upbeat in August, with the Reserve Bank of India (RBI) saying that “domestic activity remains resilient.” Nevertheless, we expect the economy to slow given the global economic backdrop, elevated inflation and tighter monetary policy,” Fitch Ratings said.
Despite inflation subsiding in August to some extent, Fitch Ratings cautioned that the risk to food inflation persists.
“Core inflation, which excludes food, fuel and light, remained elevated at 6% while inflation expectations have also stayed high. The RBI’s latest survey of household inflation expectations eased in July, but expectations are still far above pre-pandemic levels,” it said.
“Destabilising inflation expectations could risk triggering second-round effects, according to the minutes of the RBI’s August policy meeting. While the RBI expects monthly inflation data to be volatile in the near term, its expectation is for the Consumer Price Inflation to ease towards the end of the year,” it went on to add.
The RBI, which had already tightened the policy rate by 140 basis points since the beginning of this year to 5.4% in August, is expected by Fitch Ratings to continue with hikes in order to take the rate to 5.9% by 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 agency added in conclusion.
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