Fitch Upgrades India’s FY25 Growth Outlook Amid Global Growth Concerns

India’s growth forecast for the current financial year has been upgraded to 7.2 per cent from 7 per cent by American rating agency Fitch Ratings in their June Global Economic Outlook report released on Tuesday. This revision is attributed to a robust expansion in investment that has driven rapid growth in recent quarters.

In the last quarter of the fiscal year 2023-24, the Indian economy expanded by 7.8 per cent, surpassing Fitch Ratings’ projections. For the entire FY24, it grew by 8.2 per cent. The agency anticipates a continued increase in investment during Prime Minister Narendra Modi’s third term, albeit at a slower pace compared to recent quarters. Additionally, Fitch Ratings foresees a recovery in consumer spending driven by heightened consumer confidence.

“Falling indirect taxes net of subsidies have boosted GDP growth relative to gross value-added at basic prices. The latter is currently a better guide to underlying momentum and has been growing at just over 7 per cent,” the report said.

Fitch anticipates that the ‘above normal’ monsoon forecast from June to September will mitigate risks of food price spikes. They project that headline inflation in India will decrease to 4.5 per cent by the close of 2024 and average 4.3 per cent in both 2025 and 2026. 

Meanwhile, the Reserve Bank of India aims to reduce retail inflation in India to approximately its target of 4 per cent.

When it comes to global growth, the report states that it is expected to slow in 2025 despite monetary easing in 2024. “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,” it said.

“Nevertheless, central banks remain cautious about loosening policy too rapidly, particularly in light of high services inflation. Pressures from rising labour costs and housing rents and the normalisation of relative price trends are keeping services inflation elevated,” it added.

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