International credit rating agency Fitch Ratings said in its Global Economic Outlook on Monday that India’s gross domestic product growth has declined to 6.1% year-on-year for the April-June 2017 quarter, compared with 7% year-on-year for the January-March quarter of the same year. Fitch Ratings said this was the slowest GDP growth rate for India since the January-March 2015 quarter. It attributed the decline in growth to a reduction in domestic demand.

Fitch Ratings said that the Indian government’s move to demonetise Rs 500 and Rs 1,000 notes had a delayed effect on economic growth, contrary to the rapid impact such a move would be expected to have. The agency said this anomaly reflects the challenges of measuring spending in an economy with a large informal sector.

The agency also said that India’s consumption growth fell from a high rate of 11.3% in the fourth quarter of 2016-17 to 7.3% in the first quarter of 2017-18. The agency held poor growth in construction activity partly responsible for this decline. It added that investment spending as a percentage of GDP had been consistently declining in recent years. This, the agency said, could spell danger for medium to long-term growth potential of the Indian economy.

However, the agency said it expected investments to pick up soon owing to a revised monetary policy over the last two years, and structural reforms in the economy such as the Goods and Services Tax. Government spending on infrastructure will rise, it said, thus leading to an increase in investment. The agency forecast GDP growth at 7.4% to 7.6% for the next two fiscal years, but said Consumer Price Inflation would also rise.

Globally, Fitch Ratings said growth rates had recovered and would be around 2.9% for the 2017-18 fiscal year. They are expected to peak at 3.1% in 2018-19, in which case they will be the highest since 2010. Fitch Ratings attributed the recovery to “a synchronised improvement across both advanced and emerging market economies, tightening labour markets, a turnaround in China’s housing market since 2015, and improving commodity prices”.