Fitch cuts India's FY23 GDP growth forecast to 8.5%

The central bank sees India's GDP growing 7.8 per cent next financial year, with the statistics ministry predicting an 8.9 per cent growth for this year.

The ratings agency noted that the hike in the FY22 estimate comes after the Indian economy rode out the omicron variant-led third COVID-19 wave ‘with little damage’.

The projection for global growth in 2022 has been lowered to 3.5 per cent from 4.2 per cent. The global economy is also seen growing at a slower rate of 2.8 percent in 2023 as against 3 per cent forecast earlier.

"Global inflation is back with a vengeance after an absence of at least two decades. This is starting to feel like an inflation regime-change moment," cautioned Brian Coulton, the chief economist at Fitch.

Global commodity prices, particularly those of energy, have been on the rise since Russia launched its assault on Ukraine late last month.

"A potentially huge global supply shock that will reduce growth and push up inflation is hitting the post-COVID-19 pandemic recovery. Russia's invasion of Ukraine and the economic sanctions on Russia that have followed have put global energy supplies at risk. Sanctions seem unlikely to be rescinded any time soon," Fitch said.

The agency expects global oil prices to remain elevated for a while. It has forecast an average price of $100 per barrel for 2022—up from $70—and $80 per barrel for 2023.

In India, the consumer price index (CPI) inflation is seen at 4.6 per cent at the end of FY23 and 5 per cent at the end of FY24. According to Fitch, the monetary policy normalisation by the RBI has been ‘very shallow’ so far.

"The Reserve Bank of India has prioritised the economic recovery over tackling inflation amid a still-large output gap. We still expect the repo rate to rise to 4.75 percent by December, from 4 percent. The reverse repo rate – which has become the effective driver of money market rates since the start of the pandemic – is likely to be increased by a larger amount," Fitch added.

ALCHEMPro News Desk (DS)