Fitch cuts GDP growth forecast to 7% for FY23

NEW DELHI: Fitch Ratings on Thursday slashed its projection of India’s economic growth to 7 per cent for current fiscal year, citing elevated inflation levels and higher interest rates.

Fitch, which had in June projected India’s GDP to grow by 7.8 per cent in 2022-23, also forecast a slowdown in growth to 6.7 per cent in FY24 from its earlier estimate of 7.4 per cent.

In its Global Economic Outlook September 2022 released on Thursday, the rating agency said the GDP growth of 13.5 per cent in April-June, as per official data, was below its June expectation of 18.5 per cent increase.

“We expect the economy to slow given the global economic backdrop, elevated inflation and tighter monetary policy,” it said.

“Inflation moderated in August as crude oil prices eased, but the risk to food inflation persists given negative seasonality towards the end of this year.” The wholesale-price-based inflation softened to 11-month low of 12.41 per cent in August, even though retail inflation inched up to 7 per cent.

Fitch joins other agencies who have downgraded India’s economic growth forecast following a below-expected 13.5 per cent expansion in April-June (the first quarter of current fiscal year).

Moody’s Investors Service expects India’s GDP growth to slow from 8.3 per cent in 2021 to 7.7 per cent in 2022 and to decelerate further to 5.2 per cent in 2023. In March, Moody’s had forecast that India’s economy could expand at 8.8 per cent in 2022. Citigroup has sharply cut its FY23 growth projection to 6.7 per cent from 8 per cent earlier while Goldman Sachs revised it to 7 per cent from 7.2 per cent.

SBI expects 6.8 per cent growth from April 2022 to March 2023 (FY23) and India Ratings and Research (Ind-Ra) pegs it at 6.9 per cent. The Reserve Bank of India (RBI) expects the economy to grow 7.2 per cent in current fiscal year.

Fitch said core inflation, which excludes food, fuel and light, remained elevated at 6 per cent 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. Destabilising inflation expectations could risk triggering second-round effects.

“While the RBI expects monthly inflation data to be volatile in the near term, its expectation is for consumer price inflation (CPI) to ease towards the end of the year,” it said.

The RBI has raised its benchmark repo rate by 140 basis points since May, including 50 basis points last month, to 5.4 per cent.

“We expect the RBI to continue raising, to 5.9 per cent before year-end,” Fitch said. “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.”

The rating agency expected policy rates to peak in the near future and to remain at 6 per cent throughout next year.