S&P Global Ratings on Tuesday retained its economic growth projection for India at 6.8% for 2024-25 and 6.9% next year, even as it penned in downward revisions to China’s GDP growth trajectory over the next few years in its latest quarterly economic update for the Asia-Pacific region.
The rating major also continues to expect two interest rate cuts of 25 basis points each from the Reserve Bank of India (RBI) in this fiscal year, with the first rate cut likely as early as October, even as it noted that inflation pressures were yet to recede in India. Stressing that interest rate differentials with the U.S. remain uncomfortable, the firm said India was one of the few economies in the region with policy rates above the U.S.
“In India, GDP growth moderated in the June quarter as high interest rates temper urban demand, in line with our projection of 6.8% GDP for the full fiscal year 2024-2025,” wrote Louis Kuijs, Asia-Pacific chief economist at S&P Global Ratings. “The July budget confirmed that the government remains committed to fiscal consolidation and to keeping the focus of public expenditure on infrastructure,” he added.
India’s solid growth allows the RBI to focus on bringing inflation in line with its target, he noted. “The RBI considers food inflation a hurdle for rate cuts. It reckons that unless there is a lasting and meaningful decline in the rate at which food prices are increasing it will be tough to maintain headline inflation at 4%,” Mr. Kuijs noted.
While Asia-Pacific growth remains largely intact, driven by a continued export recovery and solid domestic demand in most emerging markets, China’s growth outlook has weakened because of a persistent property downturn and low consumer and business confidence, wrote Mr. Kuijs.
“We have reduced our 2024 GDP growth projection to 4.6%, from 4.8%, to reflect the weak domestic demand outlook. We see 4.3% growth in 2025, from 4.6%,” he projected. Moreover, with Chinese policymakers refraining from significant macroeconomic policy easing, especially on the fiscal front, its economy was vulnerable to downward pressure on prices and profit margins, he reckoned.
Published - September 24, 2024 08:23 pm IST
