Fitch Cuts India Growth Forecast for FY20 On Weak Momentum

The 6.9 percent estimate is lower than 7 percent growth estimated by the Central Statiscs Office for current fiscal.

Addressing the issue of declining GDP was only the first step.

(Photo: iStock)

Fitch Ratings on Friday, 22 March, cut India's GDP growth forecast for the next fiscal to 6.8 percent from 7 percent estimated earlier on weaker-than-expected economic momentum.

In its latest Global Economic Outlook, Fitch also slashed GDP growth forecast for the current fiscal ending March 2019 to 6.9 percent from 7.2 percent projected in the December edition.

The 6.9 percent estimate is a notch lower than the 7 percent growth estimated by the Central Statiscs Office (CSO) for the current fiscal.

The Indian economy grew 7.2 percent in 2017-18 fiscal.

"While we have cut our growth forecasts for the next fiscal year (FY20, ending March 2020) on weaker than expected momentum, we still see Indian GDP growth to hold up reasonably well at 6.8 per cent followed by 7.1 percent in FY21," Fitch said.

The rating agency said, India’s GDP growth softened for the second consecutive quarter in the October-December period at 6.6 percent after clocking a growth of 7 per cent and 8 percent in July-September and April-June periods, respectively.

"The slowdown has been driven by cooling activity growth in the manufacturing sector and, to a lesser extent, agriculture. Weaker momentum has been mainly domestically driven," Fitch said.

It said, credit availability has tightened up in areas heavily dependent on non-bank financial companies (NBFCs), such as autos and two-wheelers, where sales have dropped.

Also, food inflation has been muted and fell into negative territory late last year, weighing on farmers' incomes.

According to Fitch rupee is expected to weaken to 72 against the dollar by the end of December 2019, and further to 73 by December 2020, from 69.82 to a dollar in end December 2018.

It said, fiscal and monetary policies are becoming more growth friendly and RBI adopted a dovish stance and cut interest rates by 0.25 per cent last month.

“We have changed our rate outlook and we now expect another 25bp cut in 2019, amid protracted below target inflation and easier global monetary conditions than previously envisaged.”

Fitch Rating

Fitch also cut its global GDP forecasts for 2018 and 2019 at 3.2 per cent in 2018 and 2.8 percent in 2019 from 3.3 per cent and 3.1 percent respectively projected earlier.

It, however, retained China's growth projections at 6.6 percent in 2018 and 6.1 percent in 2019.

It estimates oil prices to remain around 65 dollar to a barrel in 2019 and fall to USD 62.5 to a barrel in 2020, from USD 71.6 a barrel in 2018.