Ratings agency S&P Global Ratings, Monday, retained India’s FY24 growth forecast at 6%, citing global economic slowdown, rising risks from sub-normal monsoon and delayed effect of rate hikes, even as it projected higher inflation in FY24.
“Notwithstanding the strong expansion in India in the June quarter, we maintain our forecast for fiscal 2024 (ending March 2024), given the slowing world economy, the delayed effect of rate hikes, and the rising risk of subnormal monsoons,” S&P said in its Economic Outlook Asia-Pacific Q4 2023 report.
Indian economy logged 7.8% growth in the first quarter of 2023 on the back of strong services demand and sustained capex push by the government.
“Capital expenditure growth was notably strong in Australia, India, Malaysia and New Zealand,” S&P noted in its latest report.
The global ratings agency expects inflation to rise to 5.5% in FY24, up 50 bps from 5% projected earlier, pushing the horizon for the rate cut to FY25.
“In India, the increases in global oil and food prices, combined with jumps in vegetable prices, raised consumer inflation by a large margin; it was 6.8% in August, above the Reserve Bank of India’s upper tolerance limit of 6%,” the report said.
S&P Global Ratings now expects RBI to cut rates in FY25 and bring rates down to 5.5% by the end of next fiscal. Earlier, it had pencilled in a rate cut of 25 bps by the end of FY23, followed by a percentage point drop in FY25.
The Reserve Bank is likely to hold the policy rate at 6.5% in its meeting next week, according to experts, marking the fourth consecutive time that rates are kept on hold.
In its State of Economy report earlier this month, the central bank had underlined stabilising core inflation as a sign of broad-based easing of prices.
Rosier tomorrow, with rising concerns
The growth forecast for FY25 and FY26 was retained at 6.9% by the global rating agency, rising to 7% in FY27.
“Taking stock, since the fourth quarter of 2019 (before COVID-19), India and China grew by 19.6% and 16.9%, respectively, by far the most among major economies,” S&P stated.
On the inflation front, the agency lowered India’s forecast for next year to 4.4% from 4.5% projected in its earlier report, with rates falling to 5.25% by FY26.
S&P noted a critical risk was the US and Europe slowing more than expected from monetary tightening. It also pointed to setbacks to China’s recovery as a significant concern.
“Sustained increases in global energy and commodity prices would risk stoking inflation and external deficits and amplifying the depreciation strain on currencies amid elevated US interest rates,” it said.
