S&P upgrades India's FY24 growth forecast to 6.4%
S&P Global Ratings has raised India's growth forecast for the current financial year (FY24) to 6.4%, up from 6%, due to strong domestic momentum counterbalancing challenges from high food inflation and weak exports. However, the US-based rating agency has reduced its growth estimates for the next fiscal (FY25) to 6.4% from 6.9%. This is because they are expecting a slowdown in the second half of the current fiscal because of a higher base impact and subdued global growth.
Strongest growth in emerging market economies
In its Economic Outlook for Asia Pacific, S&P emphasized that growth this year and next is set to be the strongest in emerging market economies, particularly in India, Indonesia, Malaysia, and the Philippines, thanks to solid domestic demand. The Indian economy grew by 7.2% in the FY23 fiscal year and by 7.8% in the April-June quarter in FY24. The rating agency also observed that fixed investment has recovered significantly more than private consumer spending in India.
Inflation dynamics and central bank challenges
S&P mentioned that despite temporary spike in food inflation during July-September quarter, it seems to have had little impact on underlying inflation dynamics in India. However, headline inflation remains above Reserve Bank of India's (RBI) target of 4%, indicating it will be some time before the rate cycle turns. "In Australia, India, and the Philippines, lingering inflation risks are keeping central banks occupied. The government's plans to expand fiscal policies in several countries could complicate central banks' policymaking," S&P said.
Spotlight on emerging markets with strong domestic demand
S&P Global Ratings acknowledges ongoing risks in the region but also highlights the enduring potential for growth. The agency suggests that in the upcoming months, emerging markets displaying strong domestic demand might garner increased focus and interest among investors and observers.
