S&P keeps India’s economic growth forecast unchanged

The rating agency sees the country’s GDP at 6.9 per cent in the financial year 2024-25.

It sees inflation rate easing to 5 per cent in 2023-24 fiscal, from 6.8 per cent in the current financial year.

In the quarterly economic update for Asia-Pacific, S&P saw India’s gross domestic product (GDP) likely growing by 7 per cent in the current financial year ending March 31 (2022-23), before slowing to 6 per cent in the next 2023-24 fiscal.

“In India, domestic demand has traditionally led the economy. But it has become more sensitive to the global cycle lately, in part due to rising commodity exports; and its year-on-year GDP growth slowed to 4.4 per cent in the fourth quarter (Q3 FY23),” the rating agency said.

It further said the pronounced core inflation in India suggests little slack in the economy.

S&P expects the Reserve Bank of India to raise its already high policy rate further following a recent upside surprise to inflation.

“In our view, India’s Consumer Price Index (CPI) inflation should moderate to 5 per cent in fiscal year 2024 (ending March 2024) but we also anticipate upside risks, including from weather-related factors,” it said.

The RBI has raised the repo rate by 250 basis points to 6.5 per cent, since May 2022.

Stating that the current account balances of energy-importing economies in the Asia-Pacific have deteriorated, the rating agency said in India, the external deficit reached about 3-3.5 percent of GDP in 2022.

S&P Global Ratings maintained “cautiously optimistic outlook for Asia-Pacific,” saying China’s economy was on track to recover this year.

It said external pressure from rising US interest rates will likely lift interest rates. The US and the eurozone are likely to slow significantly in 2023.

“We expect only 0.7 per cent growth in the US this year and 0.3 per cent in the eurozone,” S&P said.

(With agency inputs)