Fitch Ratings lowers India’s economic growth forecast

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Fitch Ratings on Wednesday lowered its growth expectations for the Indian economy to 8.4% for the current fiscal year ending March 2022 (FY22) from a previous forecast of a growth rate of 8.7% .

But the agency raised the outlook for the country’s gross domestic product (GDP) for the next fiscal year from 10% to 10.3%.

“We have reduced our GDP growth forecast for fiscal 22 to 8.4% (-0.3 pp). GDP growth momentum is expected to peak in FY23, at 10.3% (+0.2pp), driven by a consumption-led recovery and mitigation of supply disruptions, ”said declared Fitch in his last Global economic outlook as reported by the Press Trust of India.

Fitch also said he expects the Reserve Bank of India (RBI) to start raising interest rates in 2022, by 75 basis points, “from 2Q22”.

Inflation problems and a stronger dollar

“The magnitude and longevity of the global inflationary shock has taken most forecasters and central banks by surprise and is signaling the start of the normalization of global monetary policy,” Fitch analysts wrote in the report.

“A strong recovery in global aggregate demand in nominal terms over the past year has not been accompanied by an equal recovery in production. Supply bottlenecks resulted in lower than expected real GDP growth in 3Q21 (July-September 2021), with inflation higher than expected, ”they said.

“Further strengthening of the US dollar is expected over the forecast horizon. A stronger dollar and weaker Chinese growth could weigh on commodity prices in 2022, adding to emerging market (EM) growth challenges related to the tightening of national monetary policy, ”the report adds.

Will Omicron Affect Recovery?

“The surge in the Indian manufacturing PMI index in November suggests that the recovery is still underway, although it appears that global supply shortages have remained a drag,” Daren Aw wrote on December 1, economist at the London-based research firm Capital Economics. Remark to its customers.

“And with vaccine coverage in India still low, the threat of further virus outbreaks – either from the Omicron variant or from potential successors – will continue to loom,” Aw added.

Activity at factories nationwide hit a ten-month high in November, according to data released by IHS Markit. The making purchasing managers index (PMI) fell from 55.9 in October to 57.6 in November. A reading above 50 indicates improving conditions.

But “the main threat to the outlook, in addition to the potential new waves of Covid-19, are inflationary pressures,” commented Pollyanna De Lima, associate director of economics at IHS Markit.

“Right now, companies are absorbing most of the extra cost loads and increasing production costs only moderately. If the shortage of raw materials and shipping problems continue to affect purchasing prices, substantial increases in production costs could be observed and the resilience of demand would be tested, ”added Lima.

India’s GDP declined 7.3% in the previous fiscal year, which ended in March 2021, according to official data. This contraction marked the worst performance of the economy since the year 1947, when the country gained independence.

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