Fitch upgrades India's FY25 GDP forecast to 7.2% on strong growth

American credit rating agency Fitch Ratings has revised its India GDP forecast by 0.2 percentage points to 7.2% in the current financial year, saying the country could see stronger than expected growth rate. In its quarterly Global Economic Outlook (GEO) report for June 2024 released on Monday, Fitch Ratings says it expects the Reserve Bank of India(RBI) to cut the repo rate this year. "We expect 25 bps of cuts in both 2025 and 2026," Fitch says, adding that the country could see a rise in investments though the pace could be slower than earlier.

For the next financial year FY26, on the back of a strong investment environment and increasing consumer spending, Fitch has kept India's growth forecast unchanged at 6.5% and 6.2% for FY27. In terms of inflation, Fitch has said the retail inflation in India could fall to 4.5% by 2024-end, staying well within the RBI's target range but slightly above the mid-point.

The economic forecast by Fitch Ratings is in line with the forecast of the central bank, which in its June 7, 2024, monetary policy committee meeting, revised the country's growth forecast to 7.2% in FY25, with Q1 at 7.3%; Q2 at 7.2%; Q3 at 7.3%; and Q4 at 7.2%.

Fitch's inflation forecast for India is also in line with that of the RBI's. As per the central bank, assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5%, with Q1 at 4.9%; Q2 at 3.8%; Q3 at 4.6%; and Q4 at 4.5%.

On the global level, Fitch says the world growth will slow in 2025 despite a pivot to monetary easing this year. Fitch has raised its forecasts for world growth in 2024 as confidence in European recovery prospects improves, China’s export sector revives and domestic demand in emerging markets excluding China shows stronger momentum.

"We have raised our forecast for world growth in 2024 to 2.6% from 2.4% in the March 2024 Global Economic Outlook. We have revised up eurozone growth by 0.2pp to 0.8%; China’s growth to 4.8% from 4.5%; and EM excl. China growth quite sharply, by 0.5pp to 3.7%. However, for 2025, we forecast world growth to edge down to 2.4% as US growth slows to a below-trend rate of 1.5% and growth in the eurozone picks up to 1.5%. We also expect growth in China to fall to 4.5% next year as exports and government spending decelerate," writes Fitch.

It adds that the global monetary policy cycle is entering a new phase, in which rates will be falling slowly but to levels that will still be restricting demand. "We expect the ECB to cut rates twice more this year, and the Fed to start cutting rates in September with another cut in December. This is later than we had expected, reflecting stalled disinflation momentum in the first four months of the year. But US wage growth is gradually cooling."