In its latest update, S&P Global Ratings has made noteworthy adjustments to India’s economic growth forecasts, providing insights into the factors influencing the trajectory for the financial years 2024 and 2025.
India’s FY24 Growth Surges to 6.4%
S&P Global Ratings has upgraded its GDP growth projection for India in the financial year 2024 to 6.4%, up from the previous estimate of 6%. This upward revision is attributed to the resilience of domestic economic forces, effectively counterbalancing challenges posed by elevated food inflation and weakened export performance.
FY25 Outlook Dims Amid Global and Domestic Factors
However, the optimism for India’s economic performance takes a hit in the financial year 2025, with the GDP growth projection being revised downward to 6.4% from the earlier forecast of 6.9%. S&P Global anticipates a slowdown in the second half of FY25, influenced by subdued global growth, a higher base, and the delayed impact of interest rate hikes by the Reserve Bank of India.
Interest Rate Dynamics: A Gradual Shift Expected
S&P Global Ratings holds the view that India’s interest rate cycle will take time to turn, citing persistent inflation above the Reserve Bank of India’s target of 4%. Despite a transitory spike in food inflation, the agency expects a 100 basis points reduction in interest rates by March 2024. This contrasts with Morgan Stanley’s suggestion that India could be the first in Asia to cut interest rates by June of the same year.
Global Economic Landscape: US and China Perspectives
For the United States, S&P Global envisions a gradual decline in inflation towards the Federal Reserve’s 2% target. However, it anticipates another rate hike in December, with the first cut expected only in mid-2024. The note emphasizes that the impact of higher US interest rates on Asia-Pacific markets and currencies will likely persist into 2024.
Regarding China, S&P Global anticipates the nation to grow in line with its potential in 2024. While growth momentum has improved since August, challenges persist in the property sector, and overall confidence remains subdued. The agency has adjusted its 2023 forecast for China’s growth to 5.4%.
Questions Related to Exams
Q: What is the latest revision in S&P Global Ratings’ GDP growth forecast for India in FY24?
A: S&P Global Ratings has upgraded its Gross Domestic Product (GDP) growth projection for India in the financial year 2024 from 6% to 6.4%.
Q: Why did S&P Global Ratings revise India’s GDP growth projection for FY24 upward?
A: The revision is attributed to robust domestic momentum offsetting challenges posed by high food inflation and weak exports.
Q: What factors led to the downward revision of India’s GDP growth projection for FY25?
A: The GDP growth projection for the financial year 2025 was lowered from 6.9% to 6.4% due to expectations of a slowdown in the second half of the fiscal year. Factors influencing this anticipation include subdued global growth, a higher base, and the delayed impact of interest rate hikes by the Reserve Bank of India.
Q: How does S&P Global Ratings view the interest rate cycle in India?
A: S&P Global Ratings suggests that the interest rate cycle in India is unlikely to shift immediately, as headline inflation remains above the Reserve Bank of India’s target of 4%. The agency envisions a gradual reduction in interest rates by 100 basis points in India by March 2024.
Q: What is S&P Global Ratings’ outlook on the global economy, particularly the United States?
A: S&P Global Ratings anticipates a gradual decline in inflation toward the US Federal Reserve’s target of 2%. Despite this, the agency predicts another rate hike in the December meeting, with the first rate cut expected only in mid-2024. The note highlights the likely persisting impact of higher US interest rates on Asia-Pacific markets and currencies into 2024.