Fitch Cuts India's GDP Forecast To 8.5% For FY 2022-2023 On High Energy Prices

Inflation is expected to surge further peaking above 7 per cent in the December quarter of 2022, before gradually easing, noted Fitch

A man is seen sitting on bags of produce , inside a farmers market (Getty Image)

New Delhi: Rating agency Fitch on Tuesday lowered India's growth forecast for the next fiscal to 8.5 per cent from 10.3 per cent citing rising energy prices on the back of Russia-Ukraine war.

With the dwindling numbers of Omicron cases, the containment measures have been scaled back paving way for a pick-up in GDP growth momentum in the June quarter this year, the agency said, according to PTI report.

What’s the growth forecast?

The agency has raised the GDP growth forecast for the current fiscal by 0.6 percentage points to 8.7 per cent. "However, we have lowered our growth forecast for FY 2022-2023 to 8.5 per cent (-1.8 pp) on sharply higher energy prices," said Fitch.

Noting that GDP growth was very strong in the December quarter, the agency said the GDP is more than 6 per cent above its pre-pandemic level though it is still well below its implied pre-pandemic trend.

"High-frequency data indicate that the Indian economy has ridden out the Omicron wave with little damage in stark contrast with the two previous coronavirus waves in 2020 and 2021," it said.

Inflation is expected to surge further peaking above 7 per cent in the December quarter of 2022, before gradually easing, noted Fitch. The agency expects inflation to remain elevated throughout the forecast horizon, at 6.1 per cent annual average in 2021 and 5 per cent in 2022.

What will impact India’s growth?

Describing the economic recovery post pandemic in its Global economic Outlook-March 2022, Fitch said a potentially huge global supply shock will reduce growth and push up inflation.

"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 Sanctions seem unlikely to be rescinded any time soon," the agency said.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 per cent of the world's energy, including 17 per cent of its natural gas and 12 per cent of oil. The agency has also cut the world GDP growth forecast by 0.7 percentage points to 3.5 per cent.

"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.