Growth: India’s projection up 0.2%, China’s down 0.3%, says Fitch Ratings
Virendra Pandit
New Delhi: Global rating agency Fitch Ratings has raised India’s medium-term growth potential by 0.2 percentage points to 6.4 per cent, and reduced China’s growth projection from 4.6 percent by 0.3 percent to 4.3 percent, the media reported on Thursday.
The changes are part of Fitch’s revised assessment of potential GDP growth for 10 emerging market economies over the next five years.
“Our estimate of India’s trend growth is slightly higher at 6.4 per cent, compared with 6.2 percent previously. We think TFP growth will slow from recent years to be in line with its long-run average of 1.5 percent,” Fitch said in its latest report.
Its revision came on the back of a sharper rise in India’s labour force participation rate in recent years. It highlighted that the revised estimate for India shows a stronger contribution from labour inputs, mainly total employment, rather than labour productivity.
The rating agency also changed its projections based on a revised assessment of labour force data, and noted that while the contribution from the participation rate was revised upwards, the projected contribution of capital deepening has been lowered.
Another key factor in the agency’s outlook is Total Factor Productivity (TFP), which will slow down from recent years and align with its long-term average of 1.5 percent.
In contrast, the outlook for China has turned slightly less optimistic. The agency has lowered China’s supply-side GDP growth potential to 4.3 percent from 4.6 percent.
This is due to multiple reasons, including weaker capital deepening. The ongoing adjustment in the property market has negatively affected overall investment, which played a role in the downgrade, the agency said.
Besides, Fitch noted a slightly steeper decline in the projected labour force participation rate in China and marginally lower TFP growth, which is now estimated in line with the five-year average ending in 2023.
The rating agency’s latest assessment shows a shifting growth dynamic among major emerging economies, with India gaining slightly more ground as China sees a modest slowdown in its economic potential.
