Stable government spells 5.6% growth for India this year: Fitch
01 October 2014
India's economic growth is expected to accelerate to 5.6 per cent in the current financial year and further to 6.5 per cent in 2015-16, according to a Fitch report.
The rating agency said in its Global Economic Outlook for September that strong investments and political certainty have boosted India's prospects, even as it cut its global GDP growth forecasts for this year and the next, with emerging markets to slow more than expected.
While Fitch expects China's GDP growth to moderate to 7.2 per cent in 2014, 6.8 per cent in 2015 and 6.5 per cent in 2016 on account of its gradual rebalancing, India will be the only BRIC country where growth picks up in 2014 and accelerates further in 2015 and 2016, owing to an expected improvement in the business environment.
Brazil is in recession and Russia close to it. Fitch said it expects both to see only a subdued recovery in 2015 and 2016, underperforming most peers.
The rating agency firm said in its report released today that world GDP will grow 2.6 per cent in 2014, 3 per cent in 2015 and 3.1 per cent 201. The 2014 and 2015 forecasts are both 0.1 percentage poits lower than in the June report.
"The contribution of major advanced economies to global expansion will gradually increase, while growth will remain subdued in emerging markets after the cyclical trough this year," Fitch said.
On India, Fitch said, "The new government has started rolling out a number of policies which may improve the efficiency of the bureaucracy and strengthen the investment climate." It expects GDP growth to pick up to 5.6 per cent in FY15 (ending in March) and 6.5 per cent in both FY16 and FY17.
"Investment is likely to rise now that political uncertainty has disappeared since the new government came to power last May," it said.
The Reserve Bank of India has projected 5.5 per cent GDP growth for the current fiscal and 6.3 per cent for 2015-16.
Fitch said the expected pick-up is supported by the 5.7 per cent GDP growth in April-June quarter of the current year.
India had clocked under-5 per cent growth in the previous two years. It grew 4.5 per cent in 2012-13 and 4.7 per cent in 2013-14.
Fitch said lifting GDP growth to substantially higher levels would require large productivity gains through implementation of reforms related to governance, product and labour markets, as well as reduction of infrastructure bottlenecks.
It said India will be the only BRIC nation where growth picks up in 2014 and further accelerates in 2015 owing to an expected improvement in business environment.
The agency has a stable outlook on India's 'BBB-' rating.
Fitch said in the longer run, a credible low inflation environment would benefit growth by improving the investment environment.
For the US, Fitch maintains its forecast of robust GDP growth of 3.1 per cent in 2015 and 3 per cent in 2016, up from 2.2 per cent in 2014.
The US economy rebounded strongly in the second quarter this year after a temporary setback in the previous quarter.
The rating agency has forecast a eurozone GDP growth of 0.9 per cent in 2014, followed by 1.3 per cent in 2015 and 1.5 per cent in 2016, slightly weaker than in the June GEO report, due primarily to a sharp slowdown in Germany.
Fitch said growth in the UK has been strong and broad-based and has maintained its forecast that growth will slow from 3 per cent in 2014 to 2.5 per cent in 2015 and 2.3 per cent in 2016, as it moves to its medium-term potential rate of 2-2.25 per cent.
According to Fitch, the underlying momentum of the Japanese economy is uncertain after sharper-than-expected contraction in the second quarter this year. It has revised down the growth forecast to 1.4 per cent in 2014, from 1.6 per cent previously.