Fitch Lowers India’s Growth Forecast To 6.9% For Current Fiscal
The world economy is expected to grow at 3.1% in 2017, its fastest expansion since 2010.
Fitch Ratings has lowered India’s economic growth forecast for the current fiscal to 6.9 percent from 7.4 percent after the GDP growth “unexpectedly faltered” in the April-June quarter.
The credit rating agency said however that it expects economic activity to accelerate in the second half of the fiscal year with the waning impact of one-off events including the demonetisation shock in late 2016 and the GST rollout in July, which had dampened growth in the short term.
“The large stock of non-performing loans on bank balance sheets could, however, dampen the outlook for credit growth and business investment,” Fitch Ratings in its latest Global Economic Outlook (GEO).
The Asian Development Bank had last month slashed India’s GDP growth forecast for the current fiscal to 7 percent from 7.4 percent owing to weakness in private consumption, manufacturing output and business investment.
India had posted a 7.1 percent growth in 2016-17. ADB pencilled in 7.4 percent for 2018-19, down from the earlier forecast of 7.6 percent in July.
“In light of the poor H1FY17 (first half of 2017) outturns, we have downgraded our forecast for FY17-18 (year-ending March 2018) to 6.9 percent, a cut of 0.5 percentage points compared to the June GEO,” Fitch said.
Forecasting acceleration in activity in the second half of the current fiscal, it said consumption should drive the pick-up in growth.
“Motorcycle sales – a good indicator of rural household consumption – have gained strong momentum, bouncing back in July and August after having fallen sharply in H1FY17. Investment is also expected to tick up in the quarters ahead, in part bolstered by ramped-up public sector infrastructure spending,” Fitch said.
The Reserve Bank of India cut its policy rate to 6 percent in August, resuming the monetary easing cycle initiated in early 2015.
“However, monetary policy loosening has taken place in the context of rapidly falling inflation, implying that the RBI’s policy stance as measured by the real policy rate has not been so accommodative,” the ratings agency added.
Also Read: What The RBI Should Do, But Won’t
Fitch Ratings said the global economy has improved markedly this year and is on course to recording its fastest expansion since 2010. However, the the current favourable mix of strong growth and highly accommodative macro policies could be as good as it gets, it added.
“Our forecasts imply something of a ‘sweet spot’ for the global economy in 2017 and 2018 with above-trend growth and still highly accommodative global monetary policies. However, this is not a pattern we expect to persist into 2019 and beyond as output gaps close in advanced economies and monetary policy support is withdrawn,” said Brian Coulton, chief economist at Fitch.
Global growth has been upgraded to 3.1 percent in 2017 from 2.9 percent in June, and 2018 growth has been upgraded to 3.2 percent from 3.1 percent.
