Fitch Ratings Increases India's Midterm Growth Estimate To 6.2%

Fitch, however, lowered China's growth projection to 4.6% from 5.3%
Fitch considers higher labour force participation as one of the reasons for increasing India's growth estimate
Fitch considers higher labour force participation as one of the reasons for increasing India's growth estimateGetty Images

Fitch Ratings increased India's medium-term potential growth estimate by 70 basis points to 6.2 per cent, while it criticised China for lowering the projection for 10 emerging economies to 4 per cent on a GDP weighted-average basis.

"We have made large upgrades to India and Mexico, with the latter benefitting from a much better outlook for the capital to labour ratio. India’s estimate is higher at 6.2 per cent from 5.5 per cent and Mexico’s at 2.0 per cent from 1.4 per cent," the global ratings agency said in a report.

According to Fitch, one common element contributing to the higher growth prediction has been the labour force participation rates' quick comeback after steep falls in 2020.

Fitch has lowered its projections for South Africa to 1.0 per cent from 1.2 per cent, Korea to 2.1 per cent from 2.3 per cent, Russia to 0.8 per cent from 1.6 per cent, and China to 4.6 per cent from 5.3 per cent.

China's estimate has been revised downward from July 2021 due to a poorer employment rate projection and lower expectations for capital deepening in the next five years due to large decreases in investment growth forecasts. According to Fitch, the reduction in capital deepening has led to a decline in labour productivity growth predictions.

Due to China's lower projected growth and its weight of 57 per cent in the EM10 GDP, Fitch said it now expects average GDP weighted potential growth for the EM10 to be 4.0 per cent instead of 4.3 per cent.

A GDP-weighted average EM9 potential growth forecast, excluding China, is 3.2 per cent, higher than the prior estimate of 3.0 per cent.

Regarding India, the projected increase in growth is based on the improvement in the employment rate and a slight rise in the predicted working-age population. Additionally, India's expected labor productivity is also higher, according to the report.

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