Fitch’s Positive Outlook: “India’s Mid-Term Growth Forecast Climbs to 6.2%”

Fitch’s Positive Outlook: “India’s Mid-Term Growth Forecast Climbs to 6.2%”

Ira Singh
06 Nov’23

Fitch Ratings, a leading global credit rating agency on 6 November,(Monday), has revised its mid-term growth forecast for India upwards to 6.2%,signaling renewed optimism in the country’s economic prospects.This positive outlook comes as China’s economic slowdown continues to reverberate across emerging markets, impacting global growth dynamics.

According to recent reports,Fitch Ratings has revised India’s medium- term growth estimate upward by 70 basis points to 6.2 percent from 5.5 percent. The positive adjustment contrasts with the US credit rating agency’s reduction in the estimate for 10 emerging markets (EMs), primarily due to the influence of China, which now averages at 4 percent on a GDP weighted-average basis.One basis point is one- hundredth of a percentage point.

A common factor for the higher growth forecast has been the swift recovery in labour force participation rates following sharp declines in 2020, Fitch said.“We have made large upgrades to India and Mexico, with the latter benefitting from a much better outlook for the capital to labour ratio. India’s estimate is higher at 6.2 percent from 5.5 percent and Mexico’s at 2.0 percent from 1.4 percent,” the global ratings agency said in its report released on November 6.However, Fitch has cut the estimate for China to 4.6% from 5.3%, for Russia to 0.8% from 1.6%, for Korea to 2.1% from 2.3% and for South Africa to 1.0% from 1.2%.

Furthermore,Fitch said it predicts average GDP weighted potential growth for the EM10(Emerging Markets) at 4.0% compared to 4.3% before, owing to China’s lower potential growth forecast and its weight of 57% in EM10 GDP.

The downward revision for China in comparison to the July 2021 assessment is a result of weaker outlook for the employment rate and a reduced expectation for capital deepening in the coming five years, owing to significant reductions in investment growth forecasts. This decrease in capital deepening has resulted in lower projections for labor productivity growth, Fitch said.

As for India, the higher growth estimate comes on the back of an improvement in the employment rate and a modest increase in the working-age population forecast. India’s labour productivity forecast is also higher, it said.

However, Fitch said the latest estimates remain below their pre-pandemic potential growth projections for all the EM10 except Brazil and Poland.”This reflects deteriorating demographic trends and the legacy of disruptions from the pandemic. The latter are partly reflected through revisions to projections for capital stock and productivity growth. But some “scarring” effects are hard to capture and we have now made additional downward “level shock” adjustments to historical estimates of potential GDP in 2020 and 2021 for Mexico, Indonesia, India and South Africa,” Fitch added.