Fitch raises India's medium-term growth estimate, cuts China's

Fitch Ratings has raised India's medium-term potential growth estimate by 70 basis points to 6.2 per cent on the back of an improvement in the employment rate and a modest increase in the working-age population forecast.

In a report on Monday, Fitch projected medium-term potential growth for the 10 emerging economies at 4 per cent, down from 4.3 per cent from the previous estimate. This was "driven by a 0.7 percentage point cut" in China's growth estimate.

"We have lowered China's supply-side GDP growth potential to 4.6 per cent from 5.3 per cent. China's growth has slowed sharply in recent years and prospects for capital deepening have deteriorated as the property slump weighs heavily on the investment outlook," the rating agency said.

It also cut Russia's potential growth, by 0.8pp to 0.8 per cent.

By contrast, it made upward revisions to Brazil, India, Mexico, Indonesia, Poland and Turkey relative to its previous estimates.

Fitch attributed the higher growth forecast for India to a swift recovery in labour force participation rates, following significant declines in 2020.

"We have increased India's estimate by 0.7pp while those of Brazil, Turkey and Indonesia are all now higher by 0.2pp," it said."

"In India's case, "potential growth has increased by 0.7pp to 6.2 per cent given an improvement in the employment rate and a modest increase in the working-age population forecast," it said, adding India's labour productivity forecast is also higher.

It defined the medium term as a period from 2023 to 2027.

India's projected labour supply growth is also lower relative to 2019 given the expected negative growth in the participation rate.

While the participation rate has recovered from its pandemic slump, it remains significantly below levels recorded in the early 2000s, partly as the employment rate among women remains very low, the rating agency added.