India’s economic growth forecast for 2022 was slashed to 7.7 per cent by Moody’s Investors Service on Thursday, the PTI said. According to the report, the rating agency said that rising interest rates, uneven monsoon, and slowing global growth will dampen economic momentum on a sequential basis.
Moody’s in May had projected the country’s GDP to expand by 8.8 per cent this year. The GDP expanded by 8.3 per cent in 2021 and contracted by 6.7 per cent in 2020, the year when the pandemic struck India.
In its update to Global Macro Outlook 2022-23, Moody’s said the Reserve Bank of India (RBI) is likely to remain hawkish this year and maintain a reasonably tight policy stance in 2023 to prevent domestic inflationary pressures from building further.
Moody’s said, “Our expectation that India’s real GDP growth will slow from 8.3 per cent in 2021 to 7.7 per cent in 2022 and to decelerate further to 5.2 per cent in 2023 assumes that rising interest rates, uneven distribution of monsoons, and slowing global growth will dampen economic momentum on a sequential basis.”
It expects inflationary pressures to weaken in the second half (July-December) of the year and further in 2023.
A quicker let-up in global commodity prices would provide significant upside to growth. In addition, economic growth would be stronger than we are projecting in 2023 if the private-sector capex cycle were to gain steam, it added.
Moody’s said high-frequency data for the economy shows strong and broad-based underlying momentum in the first four months of fiscal year 2022-23 (April-July).
According to officials GDP estimates, the Indian economy expanded 13.5 per cent in April-June 2022-23, higher than 4.10 per cent growth clocked in previous March quarter.
Moody's said services and manufacturing sectors have seen robust upswings in economic activity, according to hard and survey data, such as PMI, capacity utilisation, mobility, tax filing, and collections, business earnings and credit indicators.
However, inflation remains a challenge with the RBI having to balance growth and inflation, while also containing the impact of imported inflation from the year-to-date depreciation of the Indian rupee against the US dollar of around 7 per cent.
"With the deleveraging complete, corporate-sector investment is showing early signs of a pickup, which could provide support to a continued business cycle expansion through several quarters, supported by investment-friendly government policies and the rapid digitisation of the economy,” Moody's added.
On inflation, Moody's said although inflation eased slightly to 6.7 per cent in July, it remains above the central bank's target range of 2-6 per cent for the seventh straight month.
The RBI forecasts that the inflation will remain high into 2023 and has hiked rates three times this year to 5.4 per cent to tame inflation.
On the other hand, Goldman Sachs has also revised lower its growth projections for India after the April-June quarterly gross domestic product readings missed market estimates, Reuters said. It cut GDP growth forecast to 7 per cent from 7.6 per cent in 2022 and also lowered the current fiscal year estimates by 20 basis points from 7.2 per cent.
The lower-than-expected growth during April-June created downside risk of 40 basis points to current fiscal year growth estimates, Morgan Stanley said in a note.
India's real GDP growth expanded to 13.5 per cent year-on-year in the reported quarter, as data published by the NSO on Wednesday.
"The reading was materially below our expectations," said Santanu Sengupta, India economist at Goldman Sachs. Sequentially, GDP growth momentum declined to -3.3 per cent quarter-on-quarter after expanding 0.5 per cent in the Jan-March period, Sengupta said.