Days after India’s economy showed signs of recovery, Fitch Ratings today cut the country’s GDP growth forecast for the current fiscal to 6.7 percent from the earlier projected 6.9 percent, saying the rebound was weaker than expected.
It also cut GDP growth forecast for 2018-19 fiscal year to 7.3 percent from 7.4 percent predicted in its September Global Economic Outlook. Fitch, however, expects GDP growth to pick up in the next two years on back of gradual implementation of the structural reform agenda and higher real disposable income.
The Indian economy picked up in Q3FY17 (July-September), with GDP growing by 6.3 percent year-on-year, up from 5.7 percent in Q2FY17. However, the rebound was weaker than we expected, and we have reduced our growth forecast for the fiscal year to end- March 2018 to 6.7 percent from 6.9 percent in the September GEO.Fitch Ratings Report
The U.S.-based ratings agency said growth has “repeatedly disappointed” in recent quarters, partly because of one-off factors including the demonetisation programme of November 2016 and disruptions related to the implementation of the Goods and Services Tax in July 2017.
Reversing a five-quarter slide in GDP growth, Indian economy bounced back from a three-year low to expand by 6.3 percent in July-September as manufacturing revved up and businesses adjusted to the new GST tax regime. The GDP growth in the second quarter of 2017-18 compares to 5.7 percent in April-June, the lowest growth rate since the Narendra Modi government took office, and 7.5 percent in the September quarter of the previous fiscal.
Stating that it expects GDP growth to pick up in the next two years, Fitch said gradual implementation of the structural reform agenda is expected to contribute to higher growth, as will higher real disposable income. “Recent moves by the government should help support the growth outlook and enhance business confidence,” it said.
The two-year bank recapitalisation plan of Rs 2.1 lakh crore, or 1.4 percent of GDP, is likely to help address the capital shortages that have hindered the banks’ lending capacity.
Also, the Rs 6.9 lakh crore, or 4.5 percent of GDP, road construction plan may encourage the investment growth outlook.
Inflation still running at low levels on muted food prices and rupee appreciating quite sharply against the U.S. dollar since the beginning of this year give headroom for the RBI to keep interest rates quite low in order to help lift the economy, Fitch added.
It said pick-up in global growth has been better than expected and went on to project 3.2 percent expansion this year and 3.3 percent next year.
China’s slowdown is likely to be only modest, while the stabilisation in commodity prices is helping emerging markets outside China to continue to recover from the sharp downturn in 2015, it said.
China's economy is likely to slow in 2018, but the slowdown is expected to be relatively modest with growth easing to 6.4 percent from 6.8 percent this year.