S&P retains FY22 growth forecast at 9.5%, indicates strong rebound post COVID-19 second wave

S&P Global Ratings has retained India's FY22 growth forecast at 9.5% stating that there are indications of a strong rebound in economic activity in the country after the COVID-19 second wave waned. 

The ratings agency added that inflation continues to be relatively high, and public debt concerns prevail. 

S&P Global's vote of confidence came whilst it trimmed China's growth projection by 30 basis points to 8% for 2021, citing rising near-term incertitude due to policy actions by the country and default concerns of real estate developer Evergrande. 

"In India, domestic macro indicators remain weak, though recovering," the ratings agency said in its report. 

It further added that the April-June period witnessed a steep contraction in activity in the wake of severe COVID-19 wave but high-frequency indicators hint towards a strong rebound over July-September.

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Households and micro and small enterprises were most affected in the latest downturn and will slow the recovery while they repair their balance sheets. Inflation remains high, and public debt worries persist," the report noted.

It stated that faster-than-expected tapering could cause capital flow risks as monetary policy in India remains highly accommodative with real interest rates in negative territory. 

"Other fundamentals such as the reserve buffers and current account shortfalls are better than in 2013 when India was one of the "Fragile Five" economies caught in the crosswinds of Federal Reserve tapering," the report added.

It stated that a spate of regulatory actions in China is weighing on both sentiment and economic activity even as private demand growth "is still looking soft."

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Over the past few months, Chinese policymakers have tightened regulations for the technology sector, internet gaming, gig economy and private tutoring.

 "Further uncertainty stems from property developer Evergrande, which is on the brink of defaulting …We believe Beijing would only be compelled to step in if there is a far-reaching contagion, causing multiple major developers to fail and posing systemic risks to the economy," S&P said.