United States-based credit rating agency Fitch on Tuesday cut India’s growth forecast for the next fiscal year (2022-’23) to 8.5% from 10.3%, PTI reported.

The agency cited sharp increases in energy prices for the reduction in its projection.

However, it has revised its forecast for the current financial year (2021-’22) from 8.1% to 8.7%. It noted that the Omicron wave of Covid-19 subsided quickly in India, due to which lockdowns and other restrictions were eased.

“High-frequency data indicate that the Indian economy has ridden out the Omicron wave with little damage in stark contrast with the two previous coronavirus waves in 2020 and 2021,” Fitch said. It added that the growth in India’s gross domestic product was very strong in the quarter leading up to December.

The agency said that the country’s GDP is more than 6% above pre-pandemic levels.

Consumer Price Index inflation in India will be at 4.6% at the end of 2022-’23, and will be at 5% at the end of 2023-’24, Fitch predicted, according to Moneycontrol. The agency said that the Reserve Bank of India has prioritised economic recovery over tackling inflation.

“We still expect the repo rate to rise to 4.75 percent by December, from 4 percent,” it said. “The reverse repo rate – which has become the effective driver of money market rates since the start of the pandemic – is likely to be increased by a larger amount.”

The repo rate is the interest rate at which the central bank lends money to commercial banks. The reverse repo rate is the interest rate that the RBI pays to commercial banks when it borrows money from them.

Global predictions

Meanwhile, Fitch has predicted that the United States will grow at 3.5% in 2022 and 1.6% in 2023. It has pegged China’s GDP growth at 4.8% in 2022 and 5.1% in 2023.

The ratings agency has predicted that Russia’s economy will contract by 8.0% in 2022 and 0.2% in 2023, citing global sanctions on the country after its invasion of Ukraine.

“This forecast drop in activity is comparable to that during the country’s 1998 financial crisis, and then in the global financial crisis,” the agency said, according to Moneycontrol. “The sanctions-related shock looks much larger in many respects – and will certainly last longer – but high oil prices, military spending and the pre-war current account surplus could provide some cushion.”

Fitch has pegged global economic growth at 3.5% in 2022 and 2.8% in 2023. It has slashed the forecast for 2022 by 0.7% as compared to its earlier prediction.

The agency said that the war in Ukraine and sanctions on Russia have put energy supplies at risk.

“The jump in oil and gas prices will add to industry costs and reduce consumers’ real incomes,” it said, according to PTI. “...Higher energy prices are a given.”

Russia supplies about 17% of the world’s natural gas and 12% of oil.