Fitch slashes FY23 growth forecast to 8.5%
NEW DELHI: Rating agency Fitch on Tuesday slashed India’s growth forecast for the next fiscal to 8.5% from 10.3%, citing sharply high energy prices on account of the Russia-Ukraine war.
Containment measures have been scaled back, setting the stage for a pick-up in gross domestic product (GDP) growth momentum in the June quarter this year, the agency said. It has revised upwards the GDP growth forecast for the current fiscal by 0.6 percentage points to 8.7%.
“However, we have lowered our growth forecast for FY 20222023 to 8.5% (-1.8 pp) on sharply higher energy prices,” Fitch said. The recovery from the covid pandemic is being hit by a potentially huge global supply shock that will reduce growth and push up inflation, it said in its Global Economic Outlook March 2022. “The war in Ukraine and economic sanctions on Russia have put global energy supplies at risk. Sanctions seem unlikely to be rescinded any time soon,” the agency said.
Russia supplies around 10% of the world’s energy, including 17% of its natural gas and 12% of oil. “The jump in oil and gas prices will add to industry costs and reduce consumers’ real incomes... Higher energy prices are a given,” Fitch said as it cut the world GDP growth forecast by 0.7 percentage points to 3.5%.
India’s GDP growth was very strong in the December quarter, and GDP is more than% above its pre-pandemic level though it is still well below its implied prepandemic trend, it said.
“High-frequency data indicate that the Indian economy has ridden out the Omicron wave with little damage, in stark contrast with last two coronavirus waves in 2020 and 2021,” it said.
Fitch now sees inflation strengthening further, peaking above 7% in the December quarter of 2022, before gradually easing. It expects inflation to remain elevated throughout the forecast horizon, at 6.1% annual average in 2021 and 5% in 2022.
“Local fuel prices have been flat, but oil companies will pass on higher oil prices to retail fuel prices (with offset from a reduction in the excise duty by the government),” it said.