Highlight
- Moody’s Investors Service today slashed India’s economic growth forecast for 2022 to 7.7%
- It cites slowdown in economic momentum in the coming quarters on rising interest rates, uneven monsoon
- This is a 1.1% point cut from the growth forecast of 8.8% for the current year made by Moody’s in May
business news updatesMoody’s Investors Service on Thursday (September 1) slashed India’s economic growth forecast for 2022 to 7.7 per cent, citing lack of economic momentum in the coming quarters on rising interest rates, uneven monsoon and slow global growth.
This is a sharp 1.1 percentage point cut from Moody’s’ growth forecast of 8.8 percent for the current year made in May.
The Indian economy grew by 8.3 per cent in 2021 after a 6.7 per cent contraction in 2020, the year the pandemic hit the country. In its update on the Global Macro Outlook 2022-23, Moody’s said India’s central bank is likely to remain fresh this year and maintain a tough policy stance in 2023 to prevent further escalation of domestic inflationary pressures. is likely to.
“Our expectation is that India’s real GDP growth will shrink from 8.3 per cent in 2021 to 7.7 per cent in 2022 and to 5.2 per cent in 2023, assuming rising interest rates, uneven distribution of the monsoon, and slow global growth will affect the economy. Will do momentum on a sequential basis,” Moody’s said.
Moody’s estimates came a day after India released GDP estimates for the June quarter, according to which the economy expanded by 13.5 per cent in the three-month period.
This was higher than the 4.1 per cent GDP growth seen in January-March.
Moody’s said the high frequency data for the Indian economy reflects strong and broad-based underlying momentum in the first four months (April-July) of fiscal year 2022-23.
According to official GDP estimates, the economy expanded by 13.5 per cent in April-June 2022-23, up from 4.10 per cent growth in the previous March quarter. Moody’s said the services and manufacturing sectors saw strong growth in economic activity, according to hard and survey data such as PMI, capacity utilisation, mobility, tax filing and collection, business income and credit indicators.
However, inflation remains a challenge with the RBI to balance growth and inflation, while also taking into account the impact of imported inflation from the year-on-year depreciation of the Indian rupee against the US dollar of around 7 per cent of the US dollar. has gone.
India’s economic growth before the COVID-19 shock had slowed materially due to the impact of the corporate-sector on business investment.
“With deleveraging complete, corporate-sector investment is showing early signs of a pick-up, which could support continued business cycle expansion through several quarters, fueled by investment-friendly government policies and a booming economy. backed by digitization.” Moody’s added.
With regard to inflation, Moody’s expects inflationary pressures to weaken in the July-December period of the current year and into 2023.
A rapid rise in global commodity prices would provide a significant boost to growth. Furthermore, economic growth would be stronger than projected for 2023 if the private sector capex cycle were to gain steam, it added.
Although inflation eased slightly to 6.7 per cent in July, it has remained above the central bank’s target range of 2-6 per cent for the seventh consecutive month. The RBI has projected that inflation will remain high in 2023 and has raised rates three times this year to 5.4 per cent to contain inflation.
“The central bank is likely to remain bullish this year and maintain a firm policy stance in 2023 to prevent further escalation of domestic inflationary pressures,” it added.
On the fall in growth forecast, Moody’s said the outlook is weakening, especially as the financial situation tightened following continued inflation-cutting measures by central banks.
“Our revised estimates reflect a significant decline in the outlook for several major economies since the start of the year. After 5.9 per cent GDP growth in 2021, we now expect the growth of G-20 economies to decline to 2.5 per cent in 2022, followed by 2.1 per cent in 2023.
For China, GDP growth is projected at 3.5 per cent for 2022, down from the 4.5 per cent forecast in May. China’s economy is projected to grow by 4.8 percent in 2023.
Moody’s said the global economy faces risks from the Russia-Ukraine conflict, and the risk of further energy shocks remains high. It said global trade in durable goods and commodity prices are set to soften and demand for the goods is easing.
(with PTI inputs)
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