Fitch trims forecast for ’22 household spending to 7%
CONSUMER SPENDING WILL BE AT PRE-PANDEMIC LEVELS IN 2022, HELPED BY COVID VACCINATIONS, FITCH SAID
NEW DELHI: Fitch Solutions on Thursday pared its 2022 household spending forecast for India to 7% from 7.1% estimated in August, highlighting several risks including elevated inflation, new Covid-19 variants and worries over a return of Covidrelated curbs.
Consumer spending will, however, recover to pre-pandemic levels in 2022, helped by progress on vaccinations, the Fitch Ratings affiliate said in its latest India Consumer Outlook.
“Real household spending over 2022 will build on its recovery in 2021. We forecast household spending to grow by 7% over 2022, below the 8.8% estimated growth over 2021 as favourable base effects wear off. This will put real household spending at ₹77.6 lakh crore ($1 trillion) over 2022, recovering to above the ₹73.5 lakh crore ($980 billion) posted in 2019, the pre-Covid-19 environment. The consumer spending recovery will also be supported by improving Covid-19 vaccination rates, despite India being still far from achieving herd immunity, with the theoretical minimum proportion of fully vaccinated individuals being 85%,” Fitch Solutions said.
Consumer confidence fell to a five-year low of 49.9 in September 2020 and 97.9 in May 2021 for the current situation index (CSI) and future expectations index (FEI) respectively, according to surveys conducted by the Reserve Bank of India. Poor consumer demand has impacted credit growth as people postponed non-essential spending. Both these indices remain relatively weak, but are showing the first signs of a positive reversal.
In September, the CSI stood at 57.7 and the FEI at 107, an improvement from 49 and 104 in July respectively. “However, both indicators are still below their 2019 levels (at 89.4 and 118 respectively), suggesting consumer spending on big ticket items will likely be deferred until the economic and health situation in the country stabilizes,” Fitch Solutions said.
Fitch Solutions said its forecast for a full recovery in real consumer spending growth in India in 2022 is in line with the Country Risk team’s forecast that the economy will grow by a real rate of 7.6% next year, recovering from the 7.3% contraction in 2020 and 9% growth expected in 2021. “The main driver of economic growth is the rebound in consumer spending as incomes rise along with rapid economic growth. With India’s economy expected to fully recover in 2021, we believe that more conventional growth patterns will return in 2022. Economic growth will be underpinned by consumer spending, easing unemployment, and continued investments in the country’s infrastructure sector, thus creating more jobs,” it said.
In the first half of 2022, like in the second half of 2021, inflationary pressures will rise in many countries as base effects, higher commodity prices and supply-chain challenges create localised shortages, Fitch Solutions said. “In India, we note, inflation has been ticking up, reaching a peak of 6.3% in June. Inflation has moderated over the remainder of the year, reaching 4.5% in October. Our Risk team projects that inflation will end the year at 5.5%, moderating over 2022, reaching 4.5% by year-end,” it said.