Fitch cuts growth forecast to 6.9%

New Delhi, Oct. 2: Fitch Ratings has lowered India’s economic growth forecast for the current fiscal to 6.9 per cent from 7.4 per cent after the GDP growth “unexpectedly faltered” in the April-June quarter.

The rating agency, however, said it expects the economic activity to accelerate in the second half of the fiscal year with the waning impact of one-off events including the demonetisation shock in late 2016 and the GST rollout in July, which had dampened growth in the short term.

“The large stock of nonperforming loans on bank balance sheets could, however, dampen the outlook for credit growth and business investment,” Fitch Ratings in its latest Global Economic Outlook (GEO).

The Asian Development Bank (ADB) had last month slashed India’s GDP growth forecast for the current fiscal to 7 per cent from 7.4 per cent owing to weakness in private consumption, manufacturing output and business investment.

India had posted a 7.1 per cent growth in in 2016-17.

ADB penciled in 7.4 per cent for 2018-19, down from the earlier forecast of 7.6 per cent in July.

Fitch Ratings said the global economy has improved markedly this year and is on course to recording its fastest expansion since 2010.

India’s GDP growth at 5.7 per cent in the first quarter (April-June), down from 6.1 per cent in the previous year, is “the lowest outturn since early 2013, and GDP has now been cooling for five consecutive quarters”, it said.

Economic activity in the quarter, it said, may have been disrupted by firms running down inventory ahead of the implementation of the GST in July.

The manufacturing sector lost steam in the quarter, growing at a meagre 1.2 per cent year-on-year.

The primary sector also dampened growth, while construction and tertiary activity bounced back. On the expenditure side, net trade was a big drag on growth, with exports decelerating sharply (after an admittedly strong JanuaryMarch print) and import growth remaining buoyant (at 13.4 per cent y-o-y).

“In light of the poor 1H17 (first half of 2017) outturns, we have downgraded our forecast for FY18 to 6.9 per cent, a cut of 0.5 percentage points compared to the June GEO,” Fitch said.

Fitch Ratings said the global economy has improved markedly this year and is on course to recording its fastest expansion since 2010. The large stock of nonperforming loans on bank balance sheets could, however, dampen the outlook for credit growth and business investment

— FITCH RATINGS