Explained: Why Fitch is bullish on India's growth amid global slowdown
Explained: Why Fitch is bullish on India's growth amid global slowdown
Fitch Ratings has revised India's growth forecast for the current financial year to 7.2% from the previous 7%, driven by rapid investment growth observed in recent quarters.
According to the June Global Economic Outlook released on Tuesday, India's economy expanded by 7.8% in the final quarter of FY24, surpassing Fitch's expectations, and posted an overall growth of 8.2% for the fiscal year.
The rating agency highlighted that falling indirect taxes, net of subsidies, have contributed to higher GDP growth relative to gross value-added at basic prices, which provides a better indication of underlying economic momentum, currently growing at just over 7%.
Fitch anticipates that investment will continue to rise during Prime Minister Narendra Modi's third term, albeit slower than in recent quarters.
Additionally, consumer spending is expected to recover due to high consumer confidence.
An 'above normal' monsoon forecast for June-September is expected to mitigate risks of food price spikes. Fitch projects that headline inflation in India will decrease to 4.5% by the end of 2024, averaging 4.3% in 2025 and 2026.
The Reserve Bank of India (RBI) aims to reduce retail inflation to around its 4% target.
Despite the RBI's focus on curbing retail inflation, Fitch expects only one rate cut this year, bringing the lending rate to 6.25%. This contrasts with Fitch's March forecast, which predicted a 50 basis points reduction in rates this year.
Global growth slowdown in 2025
In contrast, Fitch forecasts a slowdown in global growth in 2025 despite monetary easing expected in 2024.
The global monetary policy cycle is transitioning to a phase where rates will decline slowly but remain at levels that restrict demand.
Fitch predicts the European Central Bank (ECB) will implement two more rate cuts this year, while the US Federal Reserve is expected to begin reducing rates in September, with another cut in December.
This adjustment is later than previously anticipated, reflecting a stall in disinflation momentum in the first four months of the year.
 However, US wage growth is gradually cooling.
Fitch noted that central banks remain cautious about rapidly loosening policy, particularly due to high services inflation driven by rising labor costs, housing rents, and the normalization of relative price trends.
These factors are maintaining elevated services inflation, necessitating a cautious approach from monetary authorities.