Fitch Upgrades India's Growth Potential Amid Global Adjustments

Fitch Ratings has elevated India's growth prospects to 6.4%, while reducing China's to 4.3%. The report underscores India's strengthening labor market and contrasts it with China's challenges in investment, marking a shifting economic dynamic among emerging markets.

Fitch Ratings, the global rating agency, has adjusted its growth projections for key emerging markets, revising India's medium-term growth potential upward by 0.2 percentage points to 6.4% while it downgraded China's potential by 0.3 percentage points to 4.3%. This change is part of a broader evaluation concerning potential GDP growth for ten emerging economies over the next five years.

In its recent report, Fitch highlighted that India's estimated trend growth has increased to 6.4%, up from 6.2%. The agency attributes this revision to a more robust labor force participation rate. However, India's growth may moderate in pace, aligning with historical averages, according to the agency. The report also showed a stronger reliance on labor inputs rather than labor productivity in driving India's growth figures.

Conversely, China's growth figures have been adjusted downward due to weaker capital deepening and challenges in the property market affecting investments. Fitch identified a downturn in China's labor force participation rate and lower Total Factor Productivity (TFP), which now aligns with the country's recent five-year average, offering a less optimistic forecast for China's economic future.

(With inputs from agencies.)