S&P retains India's FY25 GDP forecast at 6.8%; lower than RBI's estimate

Global ratings agency S&P Global has retained India's GDP forecast at 6.8% for the financial year 2024-25, with high interest rates and lower fiscal spur tempering demand in the non-agricultural sectors. In its Economic Outlook Asia-Pacific Q3 2024, S&P says India's economic growth continues to surprise on the upside. "GDP growth for fiscal 2024 was revised up to 8.2%."

The global agency says while the Indian headline inflation has remained "elevated" this year, this is because of high food inflation -- core inflation is significantly lower. S&P's inflation forecast for India stands at 4.5% for 2024-25 and 4.6% each for 2025-26 and 2026-27.

For the next financial year, S&P has projected the country could grow at 6.9%, while it would see 7% growth each in the financial year 2026-27 and 2027-28.

In terms of key policy rates, S&P forecasts India's key lending repo rate at 6% for 2024-25, 5.5% for 2025-26, and 5.25% for 2026-27.

The economic forecast by S&P is lower than 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%. S&P's inflation forecast for 2024-25 for India, however, is in line with the RBI at 4.5%.

In other Asian emerging markets, S&P expects solid domestic demand growth and a pick-up in exports should drive robust growth, with the Philippines and Vietnam projected to expand almost 6%, and Indonesia almost 5%. "Overall, we project 5.1% growth in 2024 in the region excluding China and Japan, compared with 5.4% in 2023, and 5.2% in 2025."

Globally, S&P raised its 2024 GDP growth forecast to 4.8%, from 4.6%, but expects a sequential slowdown in the second quarter. "Our projection factors in only modest fiscal and monetary policy support. Indeed, overall fiscal spending through April has remained restrained and, with U.S. rates higher for longer, we don't anymore anticipate the People's Bank of China will cut its policy rate this year."

S&P has raised its 2024 China GDP growth forecast to 4.8%, from 4.6% but sees a sequential slowdown in the second quarter. "Momentum has slowed after relatively brisk 5.3% year-on-year GDP growth in the first quarter."

Following a flat GDP in 2023, the eurozone resumed sequential growth in the first quarter. S&P says it expects quarterly growth in the eurozone to be broadly the same as in the U.S. in 2024, and somewhat slower in 2025.