Fitch cuts FY27 growth projection to 6.4%; US-Iran war to slow down economy

Fitch Ratings on Tuesday lowered its GDP growth projections for the current fiscal to 6.4 per cent from the earlier estimate of 6.7 per cent, saying that the US-Iran war will slow down the economy in the September and December quarters.

Fitch said it expects a slowdown in economic growth in FY27 from the 7.4 per cent clocked in FY26 as rising prices erode real incomes and dampen consumer spending, amid a resilient capital expenditure.

“We expect GDP growth to ease to 6.4 per cent in FY27, a downward revision of 0.3pp from March. Domestic demand will be the main driver of growth, but lower imports in real terms imply positive contributions to growth from net external demand,” Fitch Ratings said in its June Global Economic Outlook.

Last week, the RBI had cut its growth forecast for the current fiscal to 6.6 per cent and upped its inflation projection to 5.1 per cent.

The rating agency said the slowdown in the economy will be most apparent in the second and third quarter of FY27, as rising prices due to the US-Iran war erode real incomes and dampen consumer spending. Fuel prices have both risen by 4-5 per cent in recent weeks.

For FY28, Fitch expects GDP growth to pick up as the energy shock unwinds, with stronger consumer spending and investment translating to a growth rate of 6.7 per cent for the full financial year, and ease towards trend growth of 6.4 per cent in FY29.

Fitch has also lowered its 2026 forecast for global growth by 0.2pp to 2.4 per cent as world growth prospects have been hurt by the oil crisis prompted by the US-Iran war.