As per S&P, India is expected to grow at 6.4 per cent in 2023-24 compared with 7.2 per cent in the previous financial year. The rating agency said the growth rate will remain at 6.4 per cent in 2024-25 before rising to 6.9 per cent next year and 7 per cent in 2026-27. In November, before the release of India’s GDP data, the rating agency had revised up the country’s growth forecast for financial year 2023-24 to 6.4 per cent from 6 per cent earlier and lowered the growth projection for financial year 2024-25 to 6.4 per cent from 6.9 per cent earlier.

At present, the Indian economy is the fifth largest ranked behind the US, China, Germany and Japan. With the Chinese economy slowing down, Asia-Pacific’s growth engine is expected to shift to South and Southeast Asia from China, the S&P report said. The rating agency has projected China’s GDP growth to slow to 4.6 per cent in 2024 (2023: 5.4 per cent), and then edge up to 4.8 per cent in 2025, and return to 4.6 per cent in 2026.

Last week, the national accounts data released by the National Statistical Office (NSO) showed that the Indian economy grew 7.6 per cent in July-September, beating consensus estimates of near-7 per cent growth rate. The growth jump came mainly on the back of the rise in manufacturing growth, corporate profitability and investments while the services sector saw a moderation.

The S&P report said unlocking the labor market potential will largely depend upon upskilling workers and increasing female participation in the workforce, with both the factors then expected to enable India to realise its demographic dividend. “A booming domestic digital market could also fuel expansion in India’s high-growth startup ecosystem during the next decade, especially in financial and consumer technology. In the automotive sector, India is poised for growth, building on infrastructure, investment, and innovation,” it said.

With elections set to be held in 2024 in many emerging economies including Indonesia, India, South Africa, and Mexico, low levels of policy predictability can undermine investor sentiment and derail existing investment potential, the report said. Emerging markets still have work to do to reap a bonanza from the structural opportunities, for instance, enhancing policy visibility will be critical in attracting investments into these developing trends, it said.

Underling the risk from high interest rates on the broader global growth outlook, the report said structurally high interest rates, in the absence of structurally greater growth expectations, will constrain investment growth. “A sharp rise in investments will be hard to justify amid higher average cost of capital and interest rate burden–as interest rates are likely to remain higher than normal for some time–and without larger average expected returns (growth),” the report said.

For global growth, the rating agency outlined risks for 2024 from persistent tight and volatile financing conditions amid entrenched inflation, increasingly pressuring debt-service capacity of more vulnerable borrowers. A deeper and longer-than-expected recession in the largest economies could further dampen global growth. Persistent input-cost inflation and high energy prices, combined with weakening demand, squeeze corporate profits and pressure governments’ fiscal balances, it said. “Stresses in global real estate markets result in materially higher credit losses and spillovers to broader economies and markets; and amplifying geopolitical tensions roil markets and weigh on business conditions. Looking ahead at the structural risks that will shape the future of credit, we see greater pressure on credit from the physical and transition risks associated with climate change, along with rising systemic risks from cyberattacks,” it said.