Fitch Ratings raises India's mid-term growth forecast to 6.2%, downgrades China

The estimate for China has been cut to 4.6 percent from the previous 5.3 percent.

Fitch Ratings on November 6 revised India's medium-term growth estimate upward by 70 basis points to 6.2 percent from 5.5 percent. The positive adjustment contrasts with the US credit rating agency's reduction in the estimate for 10 emerging markets (EMs), primarily due to the influence of China, which now averages at 4 percent on a GDP weighted-average basis.

One basis point is one-hundredth of a percentage point.

“We have made large upgrades to India and Mexico, with the latter benefitting from a much better outlook for the capital to labour ratio. India’s estimate is higher at 6.2 percent from 5.5 percent and Mexico’s at 2.0 percent from 1.4 percent,” the global ratings agency said in its report released on November 6.

Also Read: Fitch retains India's growth forecast for FY24 at 6.3%, flags inflation risks

Fitch attributed the higher growth prediction for many countries to the rapid rebound in labour force participation rates, especially after substantial declines in 2020.

The ratings agency has made downward revisions to growth estimates for other nations. The estimate for China has been cut to 4.6 percent from 5.3 percent. Russia’s estimate is now 0.8 percent instead of 1.6 percent, South Korea to 2.1 percent from 2.3 percent and South Africa is expected to grow at 1 from the earlier 1.2 percent.

Also Read: Fitch upgrades Tata Steel rating to 'BBB-'; outlook remains stable

In the case of India, the elevated growth estimate is emphasised by positive factors, including an improvement in the employment rate and a modest increase in the projected working-age population. India's labour productivity forecast has also seen an increase.

Fitch Ratings, however, added that the current estimates continue to fall short of their pre-pandemic potential growth projections for all the 10 emerging markets (EMs), with the exception of Brazil and Poland. This discrepancy is attributed to adverse demographic trends and the lingering effects of disruptions caused by the Covid-19 pandemic.

"But some ‘scarring’ effects are hard to capture in our growth framework and we now also incorporate ‘levels shocks’ to potential GDP in 2020 and 2021 for Mexico, Indonesia, India and South Africa," it said.