S&P Global Ratings on Monday kept its forecast for India's economic growth unchanged at 6% in the fiscal year starting April 1, before rising to 6.9% in the following year.
In the quarterly economic update for Asia-Pacific, S&P saw inflation rate easing to 5% in 2023-24 fiscal, from 6.8% in the current financial year.
It saw India's gross domestic product (GDP) likely growing by 7% in the current financial year ending March 31 (2022-23), before slowing to 6% in the next 2023-24 fiscal.
"India leads, with average growth of 7 per cent in 2024-2026," the update said.
Also Read | What is the target level of inflation??
GDP is projected to rise to 6.9% in the following two financial years — 2024-25 and 2025-26 and rising to 7.1% in 2026-27.
"In India, domestic demand has traditionally led the economy. But it has become more sensitive to the global cycle lately, in part due to rising commodity exports; and its year-on-year GDP growth slowed to 4.4 per cent in the fourth quarter (October-December 2022)," the rating agency said.
Pronounced core inflation in India suggests little slack in these economies, it said.
S&P expected the Reserve Bank of India to raise its already high policy rate further following a recent upside surprise to inflation.
Also Read |Tread carefully: On inflation
"In our view, India's Consumer Price Index (CPI) inflation should moderate to 5% in fiscal year 2024 (ending March 2024) but we also anticipate upside risks, including from weather-related factors," it said.
Stating that the current account balances of energy-importing economies in the Asia-Pacific have deteriorated, the rating agency said in India, the external deficit reached about 3-3.5% of GDP in 2022.
S&P Global Ratings maintained "cautiously optimistic outlook for Asia-Pacific," saying China's economy was on track to recover this year.
"We believe the recovery in China will be largely organic, led by consumption and services. Our GDP growth forecast of 5.5% this year, up from 4.8% in November, exceeds the target of around 5% announced at the National People's Congress meetings in March," said S&P Global Ratings chief economist Louis Kuijs.
External pressure from rising U.S. interest rates will likely lift interest rates. The U.S. and the eurozone are likely to slow significantly in 2023.
"We expect only 0.7% growth in the U.S. this year and 0.3% in the eurozone," S&P said.
"China's recovery won't fully offset the impact of the slowdown in the U.S. and Europe on the Asia-Pacific region. But it will alleviate it. The likely acceleration in China this year is broadly comparable to the likely slowdown in the U.S. and Europe."