India GDP Growth Forecast for 2022 Slashed to 7.7% from 8.8% by Moody’s; Know Why

Date:


Moody’s Investors Service on Thursday slashed India’s GDP growth by a whopping 1.1 percentage points citing dampening of economic momentum in coming quarters on rising interest rates, uneven monsoon, and slowing global growth. The sharp cut has now lowered India’s GDP forecast to 7.7 per cent, as compared to the earlier forecast of 8.8 per cent in May. This comes a day after the data shared by the government showed that the Indian economy grew 13.5 per cent year-on-year in the April-June quarter. However, economists said that this expansion is likely to lose momentum in the upcoming quarters on rising interest rates among other reasons.

The Reserve Bank of India has hiked its repo rates by a total of 140 basis points since May, with an increase of 50 basis points in the same during its MPC meet in August.

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

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.

“Although inflation eased slightly to 6.7 per cent in July, it remains above the central bank’s target range of 2 per cent to 6 per cent for the seventh straight month. The RBI forecasts that the inflation rate will remain high into 2023, at 5.8 per cent in the January–March period and 5.0 per cent in April–May. In August, the RBI raised the policy repo rate for a third time by 50 bps to 5.4 per cent. The central bank is likely to remain hawkish this year and maintain a reasonably tight policy stance in 2023 to prevent domestic inflationary pressures from building further.”

A quicker let-up in global commodity prices would provide significant upside to growth. In addition, economic growth would be stronger than what is being 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 remains above the central bank’s target range of 2-6 per cent for the seventh straight month.

India’s economic growth before the COVID-19 shock had materially slowed because of the impact of corporate-sector deleveraging on business investment, it said. “With the deleveraging complete, corporate-sector investment is showing early signs of a pick-up, which could provide support to a continued business cycle expansion through several quarters, supported by investment-friendly government policies and the rapid digitization of the economy,” Moody’s added.

On downward revision in growth forecast, Moody’s said the outlook continues to weaken, particularly as financial conditions have tightened following moves by central banks to tamp down persistent inflation. Our revised projections reflect the significant deterioration in the outlooks of several major economies since the start of the year. After 5.9 per cent GDP growth in 2021, we now expect growth of the G-20 economies to decelerate to 2.5 per cent in 2022, followed by 2.1 per cent in 2023, it said.

Read all the Latest Business News and Breaking News here



Source link

Share post:

Subscribe

Popular

More like this
Related

Green Leafy Veggies to Beans and Almonds, Harvard Expert Lists Brain-Boosting Foods

Brain training games keep your memory sharp but...

Banana thrown at Brazil’s Richarlison in racist attack

Richarlison says racism will continue "every day and...