NEW DELHI: Following India’s better than expected growth in the first quarter of this fiscal year, ratings agency Fitch has revised its outlook for the year upwards from 7.4 per cent to 7.8 per cent.
However, intensifying headwinds have also prompted it to make downward revisions for a subsequent couple of years.
“We have revised up our forecast for FY2018-19 growth to 7.8 per cent from 7.4 per cent on the back of the better-than-expected Q2FY18 (April-June) outturn,” Fitch said.
The upward revision in growth forecast for current fiscal comes in the backdrop of GDP expanding 8.2 per cent in the April-June quarter, higher than Fitch’s expectation of 7.7 per cent.
This robust performance was partly attributable to a powerful base effect, with GDP growth dampened in April-June quarter of FY17 by companies de-stocking ahead of the rollout of the goods and services tax, the report added.
However, the agency seems to believe growth has “peaked” with the last quarter, and brewing headwinds could begin dragging it down.
“The economic outlook is subject to several headwinds, including tightening of financial conditions, a rising oil bill and weak bank balance sheets,” it said.
The agency also noted the impact the depreciating rupee has had. “... despite the central bank’s greater tolerance for currency depreciation, interest rates have been raised by more than anticipated,” it further added. This has resulted in a downward revision of growth estimates for fiscal years 2019-20 and 2020-21 by 0.2 percentage points to 7.3 per cent.
Global factors are also beginning to enter a period of unquiet, with the trade war between the US and China well and truly underway.
“The trade war is now a reality,” said Fitch Chief Economist Brian Colton, “the recently announced imposition of US tariffs on a further $200 billion of imports from China will have a material impact on global growth and, even though we have now included the 25 per cent tariff shock in our GEO baseline, the downside risks to our global growth forecasts have also increased.”
Fitch has cut China’s growth projection for FY19 by 0.2 percentage points to 6.1 per cent. Global growth, meanwhile, is estimated at 3.3 per cent for 2018 and 3.1 per cent for 2019. Fitch sees the descent into a trade war to reduce global growth too.
“Our forecasts now encompass the recent significant escalation in US-China trade restrictions, resulting in a 0.2pp reduction in our 2019 China growth forecast to 6.1 per cent and a 0.1pp reduction in our 2019 global growth forecast to 3.1 per cent since the June GEO,” it said.
Growth forecast
Despite the forecast adjustments, near-term global growth prospects remain strong, Fitch said, with growth forecast to reach 3.3 per cent this year, up from 3.2 per cent in 2017.