Fitch revises India’s growth potential upward, lowers China’s forecast

India’s medium-term GDP growth potential is now seen at 6.4%, with labour force gains offsetting slower productivity

May 23, 2025

The revision reflects a stronger contribution from total employment rather than productivity gains

Total Factor Productivity (TFP) growth in India is expected to normalise to its long-run average of 1.5%

Capital deepening’s contribution to India’s growth has been revised downward in Fitch’s latest assessment

China’s medium-term growth projection has been cut to 4.3% from 4.6% due to weaker capital investment and labour trends

Fitch Ratings has revised India’s medium-term growth potential upward to 6.4%, an increase of 0.2 percentage points, while China’s projection has been trimmed to 4.3% from 4.6%, according to the agency’s latest report covering 10 major emerging markets.

The update attributes India’s improved outlook to a notable rise in labour force participation in recent years. While this growth is expected to continue, Fitch anticipates it will slow going forward. The agency noted that the revised estimate for India is driven primarily by stronger labour input, particularly in total employment, rather than an improvement in labour productivity.

Fitch also revised its assumptions on capital deepening, lowering its projected contribution to India’s growth. At the same time, it expects India’s Total Factor Productivity (TFP) growth to ease back to its long-run average of 1.5%, reflecting a normalisation after recent elevated performance.

Meanwhile, China’s outlook has turned more subdued. The downgrade to 4.3% stems from declining investment, largely due to adjustments in the property sector, and a steeper drop in labour force participation than previously anticipated. TFP growth for China has also been marginally downgraded to align with the country’s average over the past five years.

Fitch’s latest projections suggest a shift in the growth trajectory of key emerging economies, with India making incremental gains. At the same time, China experiences a modest decline in its long-term economic potential.

Source: Economic Times

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