MUMBAI: Fitch Ratings has raised India’s growth forecast for FY26-27 to 6.9 per cent from 6.4 per cent in June. In its latest Global Economic Outlook the global rating agency said world growth is holding up well amid the energy price shock, but real interest rates are rising. The growth dynamism in India has been very robust despite the oil price shock.
“GDP growth in India accelerated in 1Q26 to 8.6 per cent yoy, from 7.7 per cent in 4Q25, in contrast to our expectations of a slowdown. This meant that growth for FY26 was 7.8 per cent (7.4 per cent in the June outlook). Growth did slow in 2Q26, but was still 7.8 pr cent yoy – much higher than in June and indicating that the Indian economy has shown resilience in the face of the shock from the US-Iran war, despite the strong terms-of-trade deterioration seen in 1H26,” said Brian Coulton, Chief Economist.
Given the combination of strong demand, price rises, and adverse supply developments, Fitch expects the RBI to raise rates by 25bps in October this year to 5.5 per cent. Furthermore, it may rise to 5.75 per cent in early 2027 and then ease back to 5.5 per cent in 2028. Meanwhile, the Indian rupee exchange rate against the dollar is expected to remain close to current levels for the rest of the year, and to depreciate slightly next year.
Meanwhile, the rating agency has raised its forecast for global GDP growth in 2026 by 0.2 percentage points to 2.6 per cent, down only marginally from 2025 and close to the long-run trend.
US forecasts for both 2026 and 2027 have been increased by 0.2 percentage points to 2.1per cent as consumption growth defies the slowdown in real household income and the AI capex build-out shows no sign of slowing.
Eurozone
Eurozone activity has also shown resilience, and forecasts have been edged up by 0.1 percentage points in both 2026 and 2027 to 1.0 per cent and 1.2 per cent, respectively, with German GDP expanding by 1 per cent yoy in second quarter of 2026 after three years of stagnation.
Korea has seen a big upward revision as the boom in global IT spend intensifies – also supporting other economies including Mexico and Japan.
Despite stronger world growth, China's forecast has been cut by 0.1 percentage points to 4.5 per cent as falling fixed-asset investment and weak consumer spending dampen domestic demand, contrasting with stellar export growth. Brazil's economy is slowing as high real interest rates weigh on credit growth and spending.
The global monetary policy outlook has shifted significantly. The new Federal Reserve Chair Kevin Warsh has ushered in a more hawkish regime, the Bank of Japan has accelerated tightening, and the ECB has moved rates into mildly restrictive territory to mitigate the risk of second-round effects from volatility in global energy prices lasting longer than expected.
Policy rates outlook
"We have seen a big shift in the outlook for real policy interest rates over the next couple of years as a more hawkish Chair takes the helm at the Fed and central banks strive to ensure we do not see the sort of second-round effects from input cost shocks that played out after the pandemic" said Coulton.
“Fitch expects the Fed to raise rates again in December and hold them at 4.25 per cent next year. This would imply rates at end-2027 a full 125bps higher than in June's Global Economic Outlook forecast, despite a slight downward revision to our US inflation forecast as wage growth has slowed. We also expect the ECB to raise rates once more, in October, but with a low risk of second-round effects we see this year's rate rises being reversed next year as oil prices fall to $70 a barrel in our base case,” the report added.
