India's growth outlook soars: Fitch raises medium-term potential to 6.2 per cent

NEW DELHI: In an upward revision, Fitch Ratings has increased India's medium-term potential growth forecast from 5.5 per cent to a robust 6.2 per cent. This positive development reflects the country's growing economic resilience and potential for expansion.

This upgrade places India in the spotlight for its strong growth trajectory. Additionally, Mexico received a substantial boost in its growth estimate, with Fitch revising it from 1.4 per cent to 2.0 per cent. These positive changes were underpinned by a more favourable outlook for the capital-to-labour ratio.

The adjustments didn't stop there. Fitch also revised growth forecasts for other countries. Poland's potential growth estimate was increased to 3.0 per cent from 2.6 per cent, Turkey's to 4.1 per cent from 3.9 per cent, Brazil's to 1.7 per cent from 1.5 per cent, and Indonesia's to 4.9 per cent from 4.7 per cent.

However, it wasn't all good news. Fitch Ratings simultaneously lowered the growth estimate for China from 5.3 per cent to 4.6 per cent, reflecting a significant reduction in China's supply-side growth potential. Russia's growth estimate dropped to 0.8 per cent from 1.6 per cent, Korea's to 2.1 per cent from 2.3 per cent, and South Africa's to 1.0 per cent from 1.2 per cent.

The overarching trend across the ten emerging markets (EM) in Fitch's Global Economic Outlook was a drop in potential growth, with the GDP-weighted average falling to 4.0 per cent from the 4.3 per cent estimate in 2021.

The bulk of this decrease can be attributed to the substantial reduction in China's supply-side growth potential. Despite this, the unweighted average across the EM10 countries remained at a steady 3 per cent, thanks to upward revisions in other markets.

Fitch acknowledges that lingering pandemic effects and shifting demographic trends are responsible for the overall slowdown in potential growth across EM10 countries. The agency also made "level shock" adjustments to historical estimates of potential GDP in 2020 and 2021 for Mexico, Indonesia, India, and South Africa, factoring in the lingering scarring effects.

In light of these adjustments and forward-looking growth forecasts, Fitch anticipates that the EM10 potential GDP will be 3.0 percentage points lower by 2027 compared to the trajectory based on pre-pandemic potential growth estimates from 2019. This reflects the challenges that emerging markets continue to face in their pursuit of sustainable growth.

This positive revision for India's growth potential is expected to provide a substantial boost to the nation's economic prospects, reinforcing its position as a promising global player in the mid-term.