Fitch Ratings, CareEdge trim GDP growth hopes

Fitch Ratings on Friday sharply slashed its 2024-25 GDP growth forecast for India from 7.2% to 6.4%, but doesn’t expect the recent slowdown in the economy to become ‘a prolonged slump’. However, the global rating firm said it expects growth to improve only marginally to 6.5% in 2025-26.

CareEdge Ratings also pared its GDP growth forecast for the year to 6.5% from an earlier projection of 6.8%. This downward adjustment reflects the slower GDP growth of 5.4% in the July-September quarter that was also marked by a deeper contraction in corporate profitability, said the firm’s chief economist Rajani Sinha. She also pointed to the decline in public capex in the first half of the fiscal and the softness in some urban demand indicators. 

While the first half of the year has now clocked a GDP growth of 6%, CareEdge believes the slowdown is temporary, and the second half will see a 6.8% uptick. “The GDP growth is likely to pick up as the government increases its capex spending, while healthy agricultural production should further bolster rural consumption,” Ms. Sinha reckoned.

“Although indicators point to a more mixed picture in recent months, we do not think that the softness will translate into a prolonged slump in economic activity. We expect domestic demand to continue driving economic growth amid a potential trade war between the US and China and a global trade slowdown,” Fitch said in a commentary note on asset-backed securities linked to automobile loans.

Citing the above-normal south-west monsoon rains, Fitch economists said the farm sector will be supported by the robust summer crop sowing, which bodes well for a more robust harvest. “Better monsoon rains also limit inflationary risks from food price rises and increase rural purchasing power,” the agency averred.

This Wednesday, the Asian Development Bank (ADB) also moderated its forecast for India’s growth to 6.5% from 7%, citing, among other factors, ‘lower-than-expected growth in private investment and housing demand’.

Last week, the Reserve Bank of India, which had projected a 7% growth in the second quarter at its October monetary policy review, had downgraded its full-year growth forecast of 7.2% to 6.6%. ADB, Fitch Ratings and CareEdge Ratings expect growth to slip below the RBI’s forecast. 

While Fitch is sanguine about the performance of its rated asset-backed securities linked to auto loans, it said major risks “are likely to come from ongoing geopolitical tensions and oil price volatility, given the cyclical nature of the assets”.

“Performance may deteriorate materially if India’s economic slowdown accelerates beyond our forecast or if there is a rapid rise in fuel prices following a geopolitical event. This is not currently our base case, but warrants close monitoring,” it concluded.