S&P Global Ratings on Monday revised upwards India's economic growth forecast for the current financial year to 6.4%, attributing this upward revision to the country's robust domestic momentum, which has effectively counterbalanced the headwinds posed by high food inflation and weak exports.
This revised forecast is marginally higher than the estimates of other international agencies, including the IMF, World Bank, ADB, and Fitch, which collectively project India's GDP to expand by 6.3% in the current fiscal year.
The Reserve Bank of India (RBI) has also maintained a positive outlook on India's economic growth, projecting a GDP growth rate of 6.5% for both the current and next financial years. This optimism stems from the Indian economy's strong performance in the previous fiscal year, where it grew by 7.2%, coupled with the robust growth witnessed in the June quarter of the current fiscal year, where real GDP rose by 7.8% year-on-year.
Despite the positive growth outlook, concerns surrounding inflation persist. In an effort to curb inflation, the RBI has raised benchmark interest rates by 250 basis points since May last year. However, the apex bank has maintained a cautious stance, keeping the repo rate steady at 6.5% since February.
S&P's Economic Outlook for Asia Pacific highlights the resilience of emerging market economies with solid domestic demand, including India, Indonesia, Malaysia, and the Philippines. Fixed investment has shown a stronger recovery compared to private consumer spending in India, indicating the country's focus on infrastructure development and capital expenditure.
While India experienced a temporary surge in food inflation during the July-September quarter, its impact on underlying inflation dynamics appears to be limited. Nonetheless, headline inflation remains above the RBI's target of 4%, suggesting that a reversal of the rate cycle is unlikely in the near future.
S&P also acknowledges the ongoing challenges faced by central banks in several countries, including India, Australia, and the Philippines, as lingering inflation risks keep them on guard. Additionally, government plans to expand fiscal policies in certain countries could further complicate central banks' policymaking decisions.
Despite the prevailing risks, the potential for growth in the region remains strong. In the coming months, emerging markets with robust domestic demand are likely to attract greater attention, according to S&P.
With regard to China, S&P revised upwards its 2023 and GDP growth forecasts to 5.4% and 4.6%, respectively. However, the outlook for China's economy remains moderate, considering the ongoing challenges in the property sector and subdued confidence levels.
"China is coping while its neighbors step up. A property downturn is still a pain point for the Chinese economy, but growth momentum has slightly improved because of policy support," remarked Louis Kuijs, Asia-Pacific chief economist at S&P Global Ratings.
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