Fitch Ratings has slashed its growth forecast for India for the current fiscal year to 7 percent from the previous estimate of 7.8 percent.
The ratings agency also cut its GDP growth forecast for the next fiscal year to 6.7 percent from the earlier estimate of 7.4 percent, it said on September 14.
Fitch's latest growth estimate for FY23 is lower than the Reserve Bank of India's (RBI) forecast of 7.2 percent.
"The economy recovered in 2Q22 (April-June) with growth of 13.5 percent, but this was below our...expectation of an increase of 18.5 percent," Fitch said in an update to its Global Economic Outlook report.
"Seasonally adjusted estimates show a 3.3 percent quarter-on-quarter decline in 2Q22 though this seems to be at odds with high-frequency indicators," Fitch added.
A favourable base effect helped propel Indian GDP growth to 13.5 percent in April-June. However, not only was this lower than Fitch's expectations, it was also lower than the RBI's forecast of 16.2 percent and economists' expectations of 15 percent, as per a Moneycontrol poll.
While the April-June GDP data disappointed, going ahead, Fitch expects the Indan economy to slow down given the global economic backdrop, elevated inflation, and tigthening of monetary policy.
As part of the update to its Global Economic Outlook report, Fitch also cut its global growth forecast, citing the European gas crisis, high inflation, and a sharp acceleration in the pace of global monetary policy tightening.
Fitch now expects the global economy to grow by 2.4 percent in 2022, down from 2.9 percent previously. In 2023, growth is seen at 1.7 percent as against the previous forecast of 2.7 percent.
"The latest GEO (Global Economic Outlook) forecast assumes a full or near-complete shut-off of Russian pipeline gas to Europe. Despite EU (European Union) efforts to find alternatives, total gas supply to the EU will fall significantly in the near term, with the impact felt through industrial supply chains. This would be exacerbated if rationing became necessary to avoid outright gas shortages, a key risk in Germany," Fitch said.
The agency sees the eurozone and UK entering a recession later this year, with the US expected to suffer a "mild recession" in mid-2023.
In terms of numbers, Fitch expects the eurozone economy to contract by 0.1 percent in 2023, down from a growth of 2.1 percent forecast earlier. The US, meanwhile, is seen growing 1.7 percent in 2022 and 0.5 percent in 2023, following downward revisions of 120 basis points and 100 basis points, respectively.
China too is seen slowing down appreciably, with the world's second largest economy seen growing by a mere 2.8 percent in 2022, down from 3.7 percent projected earlier, due to Covid-19 pandemic restrictions and a prolonged property slump.
"Housing activity directly accounts for about 14 percent of GDP and hasconspicuously absent at the current juncture," Fitch noted.
In 2023, China's GDP is expected to grow 4.5 percent. In June, Fitch had pegged the number at 5.3 percent.
Commenting on Indian monetary policy, Fitch said it expects the RBI to keep increasing the repo rate in the coming months and take it to 5.9 percent before the end of the year.
"The RBI remains focused on reducing inflation, but said that its decisionswould continue to be 'calibrated, measured and nimble' and dependent on the unfolding dynamics of inflation and economic activity. We therefore expect policy rates to peak the near future and to remain at 6 percent throughout next year," the ratings agency added.
The RBI's Monetary Policy Committee is scheduled to next meet September 28-30 where it widely expected to raise the repo rate by 25-50 basis points from its current level of 5.4 percent.