India will record the fastest real GDP (gross domestic product) growth of 6% in 2023 (FY2023/24) among Asia Pacific nations, with countries like the Philippines and Vietnam following suit at 5.9% and 5.5, respectively, according to the latest S&P report, 'Economic Research: Economic Outlook Asia-Pacific Q3 2023'.
"We see the fastest growth at about 6% in India, Vietnam, and the Philippines. Growth in the region ex China should pick up to 4.4% in 2024 amid easier monetary conditions and somewhat better global growth," the credit ratings agency said in its latest report while retaining its GDP forecast for 2023.
Notably, the Reserve Bank’s monetary policy committee has projected the real GDP growth for 2023-24 at 6.5%.
In India, under the assumption of normal monsoons, S&P expects headline consumer inflation to soften to 5% in fiscal 2023-24 from 6.7% in 2022-23. "Softer crude prices and tempering of demand will bring down fuel and core inflation, respectively."
The country’s retail inflation had hit a 25-month low of 4.25% in May compared with 4.7% in April. This is the third month that the CPI-based inflation remained within the RBI target limit of 4% to 6%.
The agency thinks inflation and rate hike cycles have peaked in India, but it expects the Reserve Bank to cut rates only in early 2024, as it wants to see consumer inflation moving to 4% -- the center of its target range.
As per the global agency, notwithstanding this interest rate hurdle, external vulnerability has eased in several Asian economies that ran external deficits in 2022. "In India, New Zealand, the Philippines, and Thailand, external deficit trends have improved this year as oil prices have declined; and, in New Zealand, the Philippines, and Thailand, rising tourism revenues are making a difference."
On the external front, for most Asia-Pacific economies S&P sees China's recovery as dulling but not offsetting the impact of the slowdown in the U.S. and Europe in 2023. It says in India, growth in the March quarter outperformed expectations and Statistics India revised up whole-year GDP growth in fiscal 2023 (year ending March 30) to 7.2% from the earlier 7.0%, confirming a strong recovery from COVID-19. In Japan, robust private consumption and investment lifted GDP growth above our expectations.
Overall, S&P has maintained its outlook for a slowdown in Asia-Pacific, excluding China to a still meaningful 3.8% from 4.7% in 2022, with a more pronounced deceleration in economies heavily exposed to slowing global trade and interest rate increases. In the second half of the year, rising spill-over from China's recovery should broadly offset the effect of weaker growth in the U.S. and Europe, it adds.
The medium-term growth outlook also remains relatively solid. "The Asian emerging market economies remain among the fastest growing ones in our global growth outlook through 2026. India, Vietnam, and the Philippines continue to lead, with average growth of 6.7%, 6.6%, and 6.1% in 2023-2026."
