Moody’s cuts India’s economic growth forecast to 7.7% for 2022

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Moody’s cuts India’s economic growth forecast to 7.7% for 2022

Moody’s Investors Service on Thursday cut India’s economic growth forecast for 2022 to 7.7%, citing weakening economic momentum over the coming quarters due to higher interest rates, monsoon uneven and slowing global growth.

This is a sharp decline of 1.1 percentage points from the 8.8% growth projection for the current year made in May by Moody’s.

India’s economy grew by 8.3% in 2021 after contracting by 6.7% in 2020, the year the pandemic hit the country.

In its Global Macro Outlook 2022-23 update, Moody’s said India’s central bank should remain hawkish this year and maintain reasonably tight policy in 2023 to prevent domestic inflationary pressures from building further.

Our forecast that India’s real GDP growth will slow from 8.3% in 2021 to 7.7% in 2022 and slow further to 5.2% in 2023 assumes that rising interest rates, the distribution uneven monsoons and slowing global growth will dampen economic momentum on a sequential basis, Moody’s said.

Moody’s projections came a day after India released its June quarter GDP estimates, which showed the economy grew 13.5% in the three-month period.

This figure was higher than the 4.1% GDP growth recorded in January-March.

Moody’s said high-frequency data from the Indian economy shows strong and broad-based underlying momentum in the first four months (April-July) of the 2022-23 financial year.

According to official GDP estimates, the economy grew by 13.5% in April-June 2022-23, up from the 4.10% growth recorded in the previous March quarter.

Moody’s said the services and manufacturing sectors have seen a strong recovery in economic activity, according to reliable and survey data, such as the PMI, capacity utilization, mobility, reporting and tax collection, business income and credit indicators.

Moody's cuts India's economic growth forecast to 7.7% for 2022

However, inflation remains a challenge, with the RBI expected to balance growth and inflation, while containing the impact of imported inflation from the year-to-date depreciation of the Indian Rupee against the US Dollar. of about 7%.

India’s economic growth before the COVID-19 shock had slowed significantly due to the impact of corporate sector deleveraging on business investment.

“With deleveraging complete, business sector investment is showing early signs of a recovery, which could support a continued expansion of the business cycle for several quarters, supported by investment-friendly government policies and the rapid digitalization of the economy. economy,” Moody’s added.

Regarding inflation, Moody’s expects inflationary pressures to ease in the July-December period of the current year and further in 2023.

Moody's cuts India's economic growth forecast to 7.7% for 2022 (report)

A faster decline in global commodity prices would provide a significant boost to growth. In addition, economic growth would be stronger than projected for 2023 if the private sector investment cycle were to accelerate, he added.

Although inflation eased slightly to 6.7% in July, it remains above the central bank’s target range of 2-6% for the seventh consecutive month.

The RBI expects inflation to remain high through 2023 and has raised rates three times this year to 5.4% to keep inflation under control.

The central bank should remain hawkish this year and maintain a reasonably tight policy in 2023 to prevent domestic inflationary pressures from building further, she added.

On the downgrade to growth forecasts, Moody’s said the outlook continues to weaken, especially as financial conditions have tightened following central bank actions to rein in persistent inflation. .

moody's: moody's cuts india's economic growth forecast to 7.7% for 2022, bfsi news, and bfsi

Our revised projections reflect the significant deterioration in the outlook for several major economies since the start of the year. After GDP growth of 5.9% in 2021, we now expect growth in G-20 economies to slow to 2.5% in 2022 and then to 2.1% in 2023, he said.

For China, the GDP growth forecast was set at 3.5% for 2022, down from the 4.5% predicted in May. In 2023, the Chinese economy is expected to grow by 4.8%.

Moody’s said the global economy faces risks from the Russian-Ukrainian conflict and the risk of further energy shocks remains high.

He said global trade in durable goods and commodity prices are expected to slow and a pullback in demand for goods is underway.

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