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Fitch Ratings has lowered the GDP forecasts for all the major economies citing high inflation, the European gas crisis and a sharp acceleration in the pace of global monetary policy tightening.
The world is now expected to grow at 2.4 per cent for the current year from the earlier projection of 2.9 per cent, according to Fitch’s Global Economic Outlook.
For India, Fitch expects it to now grow at 7 per cent from earlier 7.8 per cent in 2022-23, with the growth expected to slow further to 6.7 per cent from 7.4 per cent projected before in 2023-24.
“The eurozone and UK are now expected to enter recession later this year and Fitch forecasts that the US will suffer a mild recession in mid-2023,” Fitch said in its latest global economic outlook.
Pointing out that India’s 13 per cent growth in April to June quarter was below its expectation of an 18 per cent rise, Fitch in its report said, “Seasonally adjusted estimates show a 3.3 per cent quarter on quarter decline though this seems to be at odds with high-frequency indicators.”
It, however, cited improvements in Purchasing Manager Indices and industrial growth through the quarter.
“The manufacturing PMI index also recovered strongly in July and remained upbeat in August, with the Reserve Bank of India (RBI) saying that “domestic activity remains resilient.”
“Nevertheless, we expect the economy to slow given the global economic backdrop, elevated inflation and tighter monetary policy,” the agency said.
The firm has cautioned that the risk of food inflation persists despite India registering a modest rise in August.
“Core inflation, which excludes food, fuel and light, remained elevated at 6% while inflation expectations have also stayed high. The RBI’s latest survey of household inflation expectations eased in July, but expectations are still far above pre-pandemic levels,” it said.
“Destabilising inflation expectations could risk triggering second-round effects, according to the minutes of the RBI’s August policy meeting. While the RBI expects monthly inflation data to be volatile in the near term, its expectation is for the Consumer Price Inflation to ease towards the end of the year,” the agency added.
