Fitch Ratings Scales Down India's FY12 GDP Forecast To 7%
2011-12-14 12:08:06
Rating agency Fitch Rating, in its latest Global Economic Outlook, scaled down India's real GDP growth forecast for the current fiscal and for FY13 to seven percent and 7.5 per cent respectively, compared to the earlier projection of 7.5 percent and eight percent respectively due to global slowdown and high domestic interest rates, The Press Trust of India reported.
Fitch's seven percent economic growth projection for the current fiscal is way below the government's 7.5 percent forecast. The government, in its Mid-Year Review released last week, revised the growth projection to 7.5 percent from the forecast of nine percent in the pre-budget survey.
The Fitch revision comes at a time when the economy grew by a mere 6.9 percent in the July-September period, the lowest in nine quarters.
The agency also revised down the FY14 GDP growth forecast to eight percent from the 8.5 percent estimated earlier.
"India's economic outlook remains challenging as growth is likely to slow against a backdrop of elevated inflation. The economy is likely to remain weighed down by a combination of the weaker global economy and higher domestic interest rates," it said.
The report said "India already experienced a sharp slowdown this year and is expected to regain some of the lost momentum by 2013."
Despite the economic slide, inflation pressures continue. The headline wholesale price index (WPI) rose 9.7 percent year-on-year in October and grew by an average of 9.5 percent y-o-y in the previous 12 months.
"Although the combination of slower economic growth and higher interest rates could eventually reduce demand driven pressure (as evident from 5.1 percent y-o-y fall in Index of Industrial Production in October 2011), supply-side pressures may not ease so quickly," Fitch said.
The recent weakening in the rupee, which has fallen roughly 15 percent in the past three months, coupled with elevated commodity prices, particularly oil, suggests that it will take time before headline WPI displays significant improvement, the report added.