Fitch raises India’s GDP forecast marginally to 7.2% in FY25

Taking a cue from a rise in consumer spending, Fitch Ratings has upped India’s growth forecast, measured in terms of GDP (Gross Domestic Products) to 7.2 per cent during fiscal year 2024-25 (FY25), from the earlier print of 7 per cent. The economy grew by 8.2 per cent during FY24.

“Investment will continue to rise, but more slowly than in recent quarters, while consumer spending will recover with elevated consumer confidence. Purchasing managers’ survey data points to continued growth at the start of the current financial year,” the agency said in its annual publication ‘Global Economic Outlook.’ The publication has raised its forecast for world growth in 2024 to 2.6 per cent from the previous forecast of 2.4 per cent.

Fitch’s forecast is on a par with RBI’s latest estimate. Earlier this month the central bank, too, had revised upwards the forecast by 20bps to 7.2 per cent. It noted that high frequency indicators of domestic activity were showing resilience. The South-West monsoon is expected to be above normal, which augurs well for agriculture and rural demand. Coupled with sustained momentum in manufacturing and services activity, this should enable a revival in private consumption.

However, Fitch’s revision is higher than that of the IMF and ADB. In April, the IMF revised its projection to 7 per cent from 6.8 per cent for the current fiscal. In the same month, ADB revised its projection to 7 per cent from 6.7 per cent for the current fiscal. S&P has projected a growth rate of 6.8 per cent

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Meanwhile, Fitch said signs of the coming monsoon season being more normal should support growth and make inflation less volatile, though a recent heat-wave poses a risk. It expects growth in later years to slow and approach its medium-term trend estimate. “We forecast real GDP growth of 6.5 per cent in FY25/26 (unchanged from March), and 6.2% in FY26/27, driven by consumer spending and investment,” it said.

Further, it noted that at its latest meeting, the RBI maintained the policy rate at 6.5 per cent and confirmed its hawkish stance of “withdrawal of monetary accommodation” and the need to bring down inflation towards target. “We still expect the RBI to cut its policy rate this year, but only once, to 6.25 per cent. In the March GEO, we expected 50bps of cuts this year. We then expect 25bps of cuts in both 2025 and 2026,” it said.

As confidence in European recovery prospects improve, the world growth forecast has been revised upward. China’s export sector revives and domestic demand in emerging markets, excluding China (EM excl. China), shows stronger momentum. The US is slowing, but only gradually and our 2024 growth forecast is unchanged at 2.1 per cent.

”The expected pivot to global monetary policy easing is now taking shape, with the ECB recently cutting rates and the US Federal Reserve and the Bank of England (BoE) both expected to follow suit in 3Q24. But inflation is surprisingly persistent and we now expect global rates to decline at a shallower pace over the next 12-18 months,” Fitch said.