Fitch Cuts India’s Growth Outlook to 6.6% for FY20

Global ratings agency Fitch Ratings cut India’s GDP growth forecast for FY20 to 6.6% from 6.8% earlier as manufacturing and agriculture sectors showed signs of slowing down over the past year.
“We see growth for FY20 printing at 6.6%, before stepping up to 7.1% in FY21and 7% in FY22,” Fitch said in its Global Economic Outlook.

In March, the ratings agency had lowered the growth forecast to 6.8% from its previous estimate of 7% on weaker than expected momentum in the economy. However, it retained the FY21 estimate at 7.1%.

India’s economy grew at a five-year low of 6.8% in 2018-19.

Citing the declines in India's GDP growth for the fourth consecutive quarter in January-March, with the economy expanding by 5.8%, Fitch said: “This is the lowest growth outturn in five years. The slowdown over the past year has been driven by steadily cooling activity in the manufacturing sector and, to a lesser extent, agriculture”.

It added that weaker momentum has been mainly domestically driven, though export growth has also faltered more recently.

The agency expects another 25 basis points rate cut later in 2019, which will push the policy repo rate down to 5.50%. One basis point is one-hundredth of a percentage point.

Monetary and regulatory easing from the RBI, along with a recovery in portfolio inflows, should support a recovery in credit to the private sector and reverse the drag from the negative credit impulse, it said.

In its June monetary policy committee review, the central bank had cut rate by 25 bps, the third cut this year, so as to increase liquidity in the system. For the ongoing fiscal year, it was the second rate cut by the RBI.

As per the agency, there is a sharp rise in growth risks from further trade war escalation and it expects global GDP growth at 2.8% compared with 3.2% last year. This could be further lower at 2.7% in 2020.

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