Economy

Fitch Ratings cuts India’s GDP forecast for FY22 to 8.4%, RBI retains 9.5%

Our Bureau | | | Updated on: Dec 08, 2021
image caption

Expanding vax coverage, fall in new Covid-19 cases is fuelling domestic recovery, says the Rating Agency

Fitch Ratings on Wednesday announced a cut to India’s economic growth forecast by 30 basis points (100 basis points mean 1 percentage point) to 8.4 per cent. Earlier, the Ratings Agency had forecasted the economic growth at 8.7 per cent. However, it has upped the growth rate projection by 20 basis points for FY 2022-23.

“We have cut our FY22 (financial year ending March 2022) GDP (gross domestic product) growth forecast, to 8.4 per cent (-0.3pp). GDP growth momentum should peak in FY23, at 10.3 per cent (+0.2pp), boosted by a consumer-led recovery and the easing of supply disruptions,” the agency said in its latest ‘Global Economic Outlook’ report.

This statement has come on a day when the Monetary Policy Committee (MPC) retained its projection for the current fiscal at 9.5 per cent. It said that the expanding vaccination coverage, the slump in fresh Covid-19 cases and the rapid normalisation of mobility is fuelling domestic recovery.

On the one hand, rural demand is expected to remain resilient while on the other hand, the spurt in contact-intensive activities and pent-up demand will continue to bolster urban demand. Still, there are some risks such as volatile commodity prices, persisting global supply disruptions, new mutations of the virus and financial market volatility pose, RBI said after the meeting of the MPC.

Meanwhile, Fitch said that an increasing share of the population being fully vaccinated has reduced the risk of future disruptive outbreaks and will support consumer confidence. “Nevertheless, risks to the recovery remain, especially in the near term, given that less than one-third of the population is fully vaccinated. The newly discovered Omicron variant has added to the risks,” it mentioned.

The agency mentioned that India’s economy staged a strong rebound in 3Q21 (July-September) from the Delta variant-induced sharp contraction. “According to our estimate, GDP rose a sharp +11.4 per cent q-o-q in seasonally adjusted terms (calendar year), after slumping -12.4 per cent in 2Q21. However, the bounce was more subdued than we expected in September,” it said.

It highlighted that the rebound in the services sector was weaker than hoped for. Nevertheless, business surveys and mobility data point to activity growing robustly in 4Q21 (October-December).

“Growth in the manufacturing sector is constrained by ongoing supply shortages, but we expect these supply bottlenecks to ease in the coming months. Carmakers are signalling a ramp-up of production while domestic coal production is increasing to make up for shortages. We expect the services sector to show a strong reading amid the lifting of most restrictions,” it said.

Talking about inflation, the agency expects headline inflation to average 4.9 per cent in 2022 and 4.2 per cent in 2023, from 5 per cent in 2021, amid moderate food inflation. “We still expect the RBI to start raising interest rates in 2022 by 75bp, beginning in 2Q22,” it said.

It also mentioned that still large negative output gap and inflation close to the midpoint target should allow the RBI to lag many other EM peers in the interest rate-normalisation process. However, the Central bank will continue to roll out liquidity withdrawal auctions to reduce excess liquidity in the banking system, it said.

Published on December 09, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

COMMENTS
This article is closed for comments.
Please Email the Editor

You May Also Like

Recommended for you