Fitch cuts India growth projection to 8% for FY22; economy to shrink by 5% this fiscal

In May update to the oulook, Fitch had projected 9.5 per cent growth in 2021-22
Last Updated 30 June 2020, 15:26 IST

Fitch Ratings on Tuesday cut India's growth forecast for 2021-22 fiscal to 8 per cent from 9.5 per cent projected last month.

It, however, retained its projection of Indian economy contracting by 5 per cent in the current fiscal.

Indian economic growth stood at an estimated 4.2 per cent in 2019-20.

In its June update of Global Economic Outlook (GEO), Fitch projected Indian economy to grow 5.5 per cent in 2022-23.

"In India, where authorities imposed one of the most stringent lockdowns globally to try to halt the spread of the virus, measures are being relaxed only very gradually; with a limited policy easing response and ongoing financial sector fragilities, we have pared our 2021 forecast to 8 per cent from 9.5 per cent in the previous GEO," Fitch said.

In May update to the oulook, Fitch had projected 9.5 per cent growth in 2021-22.

It predicted growth to contract (-)13.8 per cent in July-September quarter, as against 0.3 per cent in April-June quarter.

Fitch said the growth contraction in the current fiscal was mainly due to a 8.3 per cent and 12.4 per cent contraction in consumer spending and fixed investment, respectively, in FY21.

S&P has forecast a 5 per cent contraction in the fiscal year starting April, and the growth to recover to 8.5 per cent next fiscal.

Moody's expects India's real GDP to contract by 4 per cent in fiscal 2020 due to the shock from the coronavirus pandemic and related lockdown measures, followed by 8.7 per cent growth in fiscal 2021 and closer to 6 per cent thereafter.

With regard to China, Fitch Ratings said its recovery also continued at a solid pace in May and raised 2020 GDP forecast to 1.2 per cent, from 0.7 per cent in the previous GEO.

It projected global GDP to fall by 4.6 per cent in 2020, same as that projected in May update of GEO.

"Signs of sequential improvements in activity have become clearer over the past month, lending confidence to the view that April marked the trough of the coronavirus-related recession.

"Nevertheless, the risk of a resurgence of the virus and renewed nationwide lockdowns - which could severely interrupt the expected economic recovery path - remains high," Fitch Ratings Chief Economist Brian Coulton said.

It said firmer signs of economic recovery have emerged since our previous GEO -- in the form of sharp month-on-month increases in retail sales in the US, UK and Spain in May, a rise in US employment last month and improving PMI balances in May and June.

"Daily mobility data confirm a significant ongoing recovery in visits to retail and recreation venues as lockdown measures have eased. Construction activity is also reviving relatively quickly after having fallen particularly sharply amid lockdowns," the agency said.

Fitch expects global GDP to rise by 4.9 per cent in 2021, a rebound that is partly technical as the restrictions on activity imposed in 2020 are eased.

World growth is expected to continue at an above-trend rate of 3.4 per cent in 2022 as the impact of policy support persists and the output gap closes, although we anticipate some loss of potential GDP in the aftermath of the crisis, the agency said.

(Published 30 June 2020, 13:16 IST)

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