Fitch Ratings has raised India’s medium-term potential growth estimate by 70 basis points to 6.2%. The global ratings agency attributed this increase to the swift recovery in labor force participation rates, following sharp declines in 2020. Fitch also noted significant upgrades for India and Mexico, with Mexico benefiting from an improved outlook for the capital-to-labor ratio. India’s estimate was revised higher to 6.2% from 5.5%, while Mexico’s increased to 2.0% from 1.4%.
However, Fitch reduced the growth estimate for China to 4.6% from 5.3%, citing a weaker outlook for the employment rate and reduced expectations for capital deepening in the next five years. This led to lower projections for labor productivity growth. Fitch also lowered estimates for Russia, Korea, and South Africa.
The overall average GDP-weighted potential growth for the EM10 was predicted to be 4.0%, down from the previous estimate of 4.3%, primarily due to China’s lower growth forecast. Excluding China, the GDP-weighted average potential growth forecast for EM9 was 3.2%, higher than the previous estimate of 3.0%.
Despite the upgrades, Fitch highlighted that the latest growth estimates for EM10 nations, except Brazil and Poland, remained below their pre-pandemic projections. This was attributed to deteriorating demographic trends and pandemic-related disruptions, leading to revisions in projections for capital stock and productivity growth. Fitch also incorporated downward adjustments for historical estimates of potential GDP in 2020 and 2021 for Mexico, Indonesia, India, and South Africa, reflecting the lingering effects of the pandemic. These adjustments resulted in the estimated potential GDP for EM10 nations by 2027 being 3.0 percentage points below the trajectory implied by extending pre-pandemic potential growth estimates from 2019.