India stands out as the emerging economy with the most promising growth potential among the top ten worldwide, as gauged by Fitch Ratings’ EM10 Assessment. The agency has projected a medium-term growth potential of 4% for a group of ten prominent emerging economies, marking a revision from the 4.3% forecasted in July 2021. Notably, this adjustment stems from a downward reassessment of China’s growth prospects, resulting in a 0.7 percentage point reduction.
Fitch Ratings has recalibrated China’s supply-side GDP growth potential, lowering it to 4.6% from its previous estimate of 5.3%. This adjustment reflects China’s reduced growth trajectory in recent years. Furthermore, the agency has similarly reduced Russia’s potential growth by 0.8 percentage points to 0.8%.
The downward revision for China since July 2021 is attributed to a less optimistic employment outlook and a decreased expectation for capital deepening in the upcoming five years. This shift is grounded in substantial reductions in investment growth forecasts, subsequently leading to diminished projections for labor productivity growth.
Conversely, Fitch Ratings has revised upward the potential growth estimates for Brazil, India, Mexico, Indonesia, Poland, and Turkey. This adjustment is attributable to the swift recovery observed in labor force participation rates within these nations.
Fitch Ratings, in its report, underscores the substantial challenges faced by all the emerging economies in the EM10 group, with the exception of China and Turkey, during the year 2020. These challenges led to a significant decline in their GDP, notably in India, Mexico, and South Africa. Although these nations have demonstrated subsequent recoveries, their GDP levels in 2022 remain notably below pre-pandemic trends. India, Indonesia, and Mexico, in particular, face a significant shortfall in their projected GDP levels by 2027.
In a more favorable light, the agency has revised India’s growth estimate upward by 0.7 percentage points to 6.2%. This revision is attributed to an improved employment rate and an expanded working-age population forecast. Fitch also highlights a more optimistic labor productivity forecast for India.
The report further notes that India’s projected labor supply growth lags behind 2019 levels due to the anticipated negative growth in the participation rate. Despite some post-pandemic recovery in the participation rate, it remains below levels recorded in the early 2000s.
Fitch Ratings emphasizes that the latest growth estimates continue to fall short of pre-pandemic potential growth projections for all the EM10 economies, with exceptions for Brazil and Poland.