This financial year, India’s economic numbers might lose some points to the ongoing Middle East chaos. The conflict has dented consumer spending, as households are feeling the pinch of rising costs.Global analytics firm Fitch Ratings on Tuesday cut its FY27 GDP forecast for the country to 6.4% from 6.7% projected earlier. The ratings agency said the economy is likely to slow from the 7.4% growth recorded in FY26, While domestic demand will continue to support growth, higher prices are seen eating into real incomes and reducing spending power.“We expect GDP growth to ease to 6.4% 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.Fitch expects the impact to be most visible during the second and third quarters of FY27. It attributed this to increasing price pressures linked to the US-Iran conflict, which are expected to dampen consumer demand. Fuel prices have already risen by 4-5% in recent weeks.The revised outlook comes shortly after the Reserve Bank of India lowered its own growth forecast for the current fiscal to 6.6%, while raising its inflation estimate to 5.1%.Despite the expected slowdown, Fitch said investment activity remains resilient. It also noted that lower imports, in real terms, could result in net external demand contributing positively to overall growth.Looking ahead, the agency expects conditions to improve once the energy shock eases. It has projected GDP growth of 6.7% in FY28, driven by stronger consumer spending and investment. Growth is then expected to settle at 6.4% in FY29.Fitch also downgraded its outlook for the global economy, cutting its 2026 growth forecast by 0.2 percentage points to 2.4%. It said the oil crisis triggered by the US-Iran war has clouded growth prospects across the world.“The oil price shock is hitting world growth prospects and increasing downside risks. But we are also amid a very pronounced boom in global spending on IT and that is cushioning the impact on activity in the near term, particularly in Asia,” Fitch, Chief Economist, Brian Coulton said.The agency said the Strait of Hormuz has remained closed for 14 weeks and assumed that it would not begin reopening until July.Fitch has revised its average Brent crude oil price estimate for 2026 to $87 per barrel, up from the $70 per barrel projected in March.While describing the oil shock as a significant challenge for the global economy, Fitch said it was not as severe as the oil crises witnessed in the 1970s. It noted that real oil prices had reached $170 per barrel in 1979, measured in current prices, and added that oil consumption as a share of global GDP has halved since 1980.On inflation, Fitch said consumer prices in India have not yet risen sharply, although pressure is building. It pointed out that wholesale prices increased by 8.3% year-on-year in April, while CPI inflation stood at 3.5%.“We expect inflation to rise steadily over the months ahead, reaching 5.3% by the end of the (calendar) year. This reflects a combination of base effects and higher energy prices. Forecasts for below-average monsoon rains and the current heatwave in parts of India raise the risk of even stronger price rises,” Fitch said.The RBI had kept its policy rate unchanged at 5.25% in April. However, Fitch expects the central bank to raise rates once this year to 5.5% to tackle rising inflationary pressures stemming from the supply shock.“We do not expect a further, significant depreciation in the Indian rupee over the rest of the year,” Fitch said. It expects the Indian currency to average 97.50 against the US dollar during the current fiscal year.
