India's growth outlook strong despite China's slowdown, says Fitch
The weighted average growth of Emerging Markets Asia likely to fall marginally to 6.4% in 2014 and 5.9% in 2018, from 6.5% in 2016 due to gradual slowdown in China's growth. However, the fall is well below the average of 7.8% between 2010 and 2014, but higher than other peers region, a report said.
India, which accounts for 14% of the emerging market's gross domestic product, the weighted growth likely to be 5.2% in 2017. Fitch report said that the growth outlook is strong for India, Bangladesh and Philippines.
As per the report, China accounts for 69% of emerging market's gross domestic product. Without it, the weighted average is expected to rise to 6.3% in 2017 and 6.4% in 2018, from 5.9% in 2016.
Moreover, the main source of the growth to include an infrastructure boost and the implementation of ambitious reform agendas in some Asian economies, like India and Indonesia.
"Limited room seems to exist in emerging Asia for a policy rebalancing from monetary to fiscal stimulus similar to what Fitch expects in advanced economies. Public debt levels are high in some countries, such as India, and credible fiscal policy rules prohibit further fiscal stimulus in Indonesia", the report said.
The public debt levels forced the rating agency not to take positive rating action for India, the report said.
The report also mentioned that there is room for further monetary easing in India where inflation of 4.2% in October 2016 was below the intermediate target of 5% by March 2017 and within the medium-term target range of 4% +/- 2%.
For India, on December 7, the Reserve Bank of India will announce its monetary policy decision.
According to the report, a severe slowdown in China would hit the region particularly hard, given the strong trade, financial sector and FDI linkages, and some countries’ dependence on China for the financing of large infrastructure projects, such as the China-Pakistan Economic Corridor, or currency swap lines, like in Mongolia.
The rating agency forecasts real GDP growth of 6.4% in 2017, down from a projected 6.7% in 2016, due to the impact of recent macroprudential tightening measures targeting the housing market.
"A disruptive adjustment in China would have negative repercussions for the broader region, as would a sharp depreciation in the Chinese yuan", the report said.