Fitch Report: India's Growth Set to Moderate in Q3; Consumer Spending Forecast Lower at 5.1%

Fitch Ratings has released its latest economic outlook for India, and the forecast for the third quarter of 2023-24 suggests a moderation in the country's growth trajectory. Several factors are contributing to this outlook.

1. Weakening Exports: Exports continue to decline, impacting India's economic growth. This trend is a cause for concern, as it affects the country's global trade competitiveness.

2. Stagnant Credit Growth: Credit growth is flatlining, which can hamper investment and expansion opportunities for businesses. A robust credit market is crucial for sustained economic growth.

3. Consumer Confidence: The Reserve Bank of India's latest bimonthly consumer confidence survey indicates that consumers are becoming more pessimistic about their income and employment prospects. This shift in sentiment can influence consumer spending patterns.

4. Inflationary Pressures: Temporary increases in inflation, especially rising food inflation, may limit households' discretionary spending power. Fitch now expects retail inflation to end 2023 at 5.5%, higher than its previous forecast of 5%, adding pressure to consumer budgets.

5. Global Economic Slowdown: India is not immune to the global economic slowdown. The domestic economy is also feeling the lagged impact of the RBI's 250 basis points of interest rate hikes over the past year.

6. Monsoon Uncertainty: A poor monsoon season could further complicate the RBI's efforts to control inflation, as agriculture is significantly affected by weather conditions.

Fitch has adjusted its consumer spending growth forecast for India to 5.1% this year, down from 7.5% the previous year. Despite these challenges, Fitch's overall growth forecasts for India remain unchanged at 6.3% for this fiscal year.

Globally, Fitch has revised its world growth forecast slightly downward to 1.9%, citing widespread downward revisions and escalating risks, particularly from China. The agency has also adjusted growth forecasts for the United States, the eurozone, China, and emerging markets.

China's housing market stabilization has not materialized as hoped, posing risks to its economy. In contrast, the U.S. has experienced rapid consumption growth this year, fueled by increased household income and spending. However, labor market dynamics are shifting, and credit conditions are tightening.

The eurozone faces challenges due to energy shocks and external factors affecting trade and China's slowdown. Meanwhile, central banks worldwide are navigating high core inflation rates, leading to nuanced approaches to monetary policy.

In summary, India's growth prospects for the third quarter of 2023-24 are showing signs of moderation due to various domestic and global factors. Fitch's analysis provides valuable insights into the economic landscape, allowing businesses and investors to make informed decisions in these challenging times.

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