S&P Global Ratings raises India’s FY24 GDP growth forecast; cuts FY25 projection

S &P Global Ratings said India’s economy in FY24 will grow at a faster clip than it previously projected before hitting a slower-than-estimated trajectory in the next financial year. The rating agency revised the Gross Domestic Product (GDP) growth projection for financial year 2024 to 6.4% from 6% earlier on the back of strong domestic tailwinds.

“We have revised up our projection for India’s GDP growth for fiscal 2024 (ending in March 2024) to 6.4%, from 6%, as robust domestic momentum seems to have offset headwinds from high food inflation and weak exports,” it said in a note.

However, it lowered the growth projection for financial year 2025 to 6.4% from 6.9% earlier.

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This reduction comes on the back of expectations of growth slowing in the second half of the year amid subdued global growth, a higher base and a lagged impact of interest rate hikes effected by the Reserve Bank of India.

S&P’s FY25 GDP growth prediction is lower than the RBI’s projection of 6.6%.

The agency noted that India’s GDP exceeded the 2019 level by 15.5% in the first half of the current fiscal. Also, fixed investment has recovered considerably more than private consumer spending, it added.

S&P believes that it will take some time for India’s interest rate cycle to turn as the headline inflation still remains above the RBI’s target of 4%.

“In India, there was a transitory spike in food inflation in the July-September quarter, but it appears to have had little effect on the underlying inflation dynamics,” the note said. It expects interest rates to fall by 100 basis points by March 2024.

One basis point is one-hundredth of a percentage point.

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The Consumer Price Index (CPI) — or retail inflation—declined to 4.9% in October after touching a high of 7.4% in July. In its October statement, the Monetary Policy Committee had said that the near-term inflation outlook is expected to improve on the back of vegetable price corrections and a reduction in cooking gas prices.

S&P Global said India’s manufacturing gauge eased during October, but at above 55 it remained stronger than many developed countries.

India’s manufacturing activity in October grew at the slowest pace in eight months, dragged down by slowing demand in the consumer goods segment, even as new orders dropped to the lowest in a year and cost pressures intensified. Going ahead, the rating agency expects emerging market economies to report higher domestic demand than their global peers. The rating agency expects overall growth in the Asia-Pacific region to be on track.

“Overall, growth this year and next is on track to be the strongest in emerging market economies with solid domestic demand, in India, Indonesia, Malaysia, and the Philippines,” S&P Global said.

For the US, the rating agency sees a gradual decline in inflation toward the US Federal Reserve’s target of 2%. However, it expects another rate hike in the December meeting and the first cut to take place in mid-2024. “In all, the strain from higher US interest rates on Asia-Pacific markets and currencies will likely persist into 2024,” the note said. For China, S&P Global has raised its 2023 forecast to 5.4%. It expects China to grow in line with its potential in 2024.

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“China’s outlook has improved, but obstacles remain. With the property sector struggling and confidence subdued, the growth outlook remains moderate,” it said. A property downturn is still a pain point for the Chinese economy, but growth momentum has slightly improved because of policy support, it added.

Rhik Kundu contributed to the story