Fitch Ratings ups GDP growth forecast to 7% for FY25 on demand push

It expects 50 bps rate cut by RBI in the second half of 2024

Global rating agency Fitch Ratings on Thursday raised India’s growth forecast for the next financial year (FY25) to 7 per cent from 6.5 per cent estimated earlier, citing robust domestic demand and sustained growth in business and consumer confidence.

It also expects the growth in the current financial year to clock 7.8 per cent, slightly higher than the government's own forecast of 7.6 per cent.  

“Domestic demand, especially investment, will be the main driver of growth amid sustained levels of business and consumer confidence. Our forecasts imply that growth in the short term will outpace the economy’s estimated potential and that the pace of growth of activity will then moderate towards the trend in FY25, with real GDP rising by 6.5 per cent in [FY26],” the rating agency noted.

“Prospects for emerging markets (excluding China) have brightened, particularly in India, where we now expect growth to reach 7.8 per cent in the financial year ending March 2024 and 7 per cent in FY25, both sizable upward revisions. With GDP growth having exceeded 8 per cent for three consecutive quarters, we expect an easing in growth momentum in the final quarter of the current financial year,” it said.

For China, Fitch trimmed its 2024 forecast to 4.5 per cent from the 4.6 per cent estimated earlier, reflecting deterioration in the outlook for the property sector and growing evidence of deflationary pressures.

It also noted that consumer price inflation picked up in the last months of 2023, driven by food prices and the Reserve Bank of India (RBI) has kept its key policy rate at 6.5 per cent, and in its communication, has focused on confirming its hawkish policy stance of “withdrawal of monetary accommodation” and the need to bring inflation down towards the target.

“Core inflation measures are steadily declining, underlining that developments in food prices (which account for around half of India’s consumer price index) will be key to inflation developments and the pace at which inflation will approach the RBI’s 4 per cent mid-point of its 2- 6 per cent target band. We expect headline inflation to steadily decrease to 4 per cent by calendar year-end on the assumption that recent food price volatility will subside. We now think that the RBI will cut rates only in the second half of 2024 and by 50 basis points (bps) (revised from 75 bps in December) in view of the stronger growth outlook,” the rating agency said.

Earlier last week, buoyed by the government’s capital expenditure and strong domestic consumption, Moody’s Ratings, formerly known as Moody’s Investors Service, also revised its growth forecast for India for the calendar year 2024 to 6.8 per cent from 6.1 per cent estimated earlier.