Fitch Ratings Adjusts Growth Projections: India Up to 6.4%, China Down to 4.3%
Fitch Ratings Updates Growth Forecasts
Fitch Ratings has increased India's medium-term growth forecast by 0.2 percentage points, now estimating it at 6.4%. In contrast, China's growth projection has been reduced by 0.3% to 4.3%, down from 4.6%. These adjustments are part of Fitch's revised evaluation of potential GDP growth for ten emerging markets over the next five years.
According to the latest report from Fitch, the agency has slightly raised its estimate for India's trend growth to 6.4%, up from the previous 6.2%. They anticipate that Total Factor Productivity (TFP) growth will decelerate to align with its long-term average of 1.5%.
This revision is attributed to a notable increase in India's labor force participation rate in recent years. While Fitch expects this trend to persist, it may do so at a slower rate. The agency emphasized that the updated estimate for India reflects a more significant contribution from labor inputs, particularly total employment, rather than labor productivity.
Insights from Fitch Ratings
Fitch has also revised its projections based on updated labor force data. The agency noted an upward adjustment in the contribution from the participation rate, while the anticipated contribution from capital deepening has been decreased.
A crucial aspect of the agency's outlook is TFP. Fitch predicts that TFP growth in India will slow down and align with its long-term average of 1.5%. Conversely, the outlook for China has become slightly less favorable, with the agency lowering China's supply-side GDP growth potential to 4.3% from 4.6%.
This downgrade is attributed to various factors, including a decline in capital deepening. The ongoing adjustments in the property market have adversely impacted overall investment, contributing to the downgrade.
Moreover, Fitch observed a more pronounced decline in the projected labor force participation rate in China, along with a slight reduction in TFP growth, which is now expected to align with the five-year average ending in 2023.
Fitch's latest evaluation indicates a shifting growth landscape among major emerging economies, with India gaining a slight advantage as China experiences a modest slowdown in its economic potential.