Fitch Ratings, in its recent report, has revised the medium-term potential growth for 10 emerging economies to 4%, down from the earlier projection of 4.3% in July 2021. This downward revision is primarily due to a 0.7 percentage point cut in China’s growth prospects. China’s supply-side GDP growth potential has been reduced to 4.6% from 5.3% because of its slowing growth and reduced expectations for capital deepening over the next five years. This decrease in capital deepening has led to lower projections for labor productivity growth.
On the other hand, Fitch Ratings has made upward revisions for Brazil, India, Mexico, Indonesia, Poland, and Turkey, attributing these changes to the swift recovery in labor force participation rates. Despite recoveries in most countries, GDP in 2022 remained significantly below pre-pandemic levels, especially in India, Indonesia, and Mexico.
Fitch Ratings highlighted that the cumulative shortfall in projected GDP levels by 2027 is most significant in China (6.3%), followed by India (5.8%), South Africa (5.4%), and Mexico (3.8%).
In the case of India, Fitch increased its estimate by 0.7 percentage points to 6.2%, citing improvements in the employment rate and an increase in the working-age population forecast. However, the report noted that India’s projected labor supply growth is lower compared to 2019 due to the expected negative growth in the participation rate. Despite some recovery from the pandemic slump, the participation rate remains below levels recorded in the early 2000s.
Fitch Ratings emphasized that the latest growth estimates for all the emerging economies, except Brazil and Poland, remain below their pre-pandemic potential projections.