Fitch Ratings upgrades India’s FY24 GDP forecast to 6.3% from 6%

Fitch Ratings on Thursday revised upwards its economic growth estimate for India by 30 basis points (bps) to 6.3 per cent for 2023-24 (FY24), citing stronger outturn in the March quarter of FY23 and near-term momentum.

It, however, cautioned that the slowdown in global trade still posed a downward risk.

In March, the credit rating agency had lowered its growth forecast for FY24 to 6 per cent from 6.2 per cent citing headwinds from elevated inflation and interest rates along with subdued global demand.

It estimated the Indian economy to grow at 6.5 per cent for both years of FY25 and FY26. This compares with 7.2 per cent gross domestic product (GDP) expansion in FY23 and 9.1 per cent in FY22.

In the June edition of its Global Economic Outlook report, Fitch noted that the manufacturing sector showed recovery in the March quarter after two consecutive quarterly contractions, and the construction and farm sector experienced a boost. In expenditure terms, GDP growth was driven by domestic demand and a boost from net trade, the report said.

“India’s economy has been showing broad-based strength — with GDP up by 6.1 per cent year-on-year (YoY) in 1Q23 (March quarter of FY23) and auto sales, Purchasing Managers Index surveys and credit growth remaining robust in recent months — and we have raised our forecast for the fiscal year ending in March 2024 (FY24) by 0.3 bps to 6.3 per cent,” the report said.

Besides, it noted that the inflation has moderated in recent months and the domestic economy has picked up, even as the monsoon and the potential impact of El Nino pose near-term upward risks. It stated that the full impact of 250 bps of monetary tightening is still to be felt.

“Domestically, consumers have experienced a drop in purchasing power as inflation increased sharply in 2022 and household balance sheets have also been weakened through the pandemic. At the same time, the government’s push on increased capital expenditure, moderation in commodity prices, and robust credit growth are expected to support investment. Slowing inflation should also start to help consumers over time and households have now turned more optimistic about future earnings and employment,” it said.

Fitch revised global GDP growth upwards for 2023 to 2.4 per cent from 2 per cent estimated earlier, arguing that world economic activity is holding up better than expected.

“World GDP forecast for 2024 has been lowered to 2.1 per cent from 2.4 per cent in March, due to longer lags in the impact of higher interest rates, along with weaker base effects for emerging markets growth. World growth should pick up in 2025 on monetary easing in 2024,” it noted.