Moody’s pares India growth hopes to 7%


Rupee, oil prices key factors behind downward revision for 2022-23; Growth to slip below 5% next year

Rupee, oil prices key factors behind downward revision for 2022-23; Growth to slip below 5% next year

Citing the weakening Rupee and high oil prices, global rating firm Moody’s Investors Service on Friday, November 11, 2022, scaled down India’s 2022-23 growth projection from to 7% from an earlier estimate of 7.7% and warned that the economy’s growth will decelerate further to just 4.8% in 2023-24.    

“The downward revision assumes higher inflation, high interest rates and slowing global growth will dampen economic momentum by more than we had previously expected,” the firm noted, with the weakening rupee and oil prices continuing to exert pressure on the inflation front.   

In its latest global macro outlook for 2023-24, Moody’s downgraded forecasts for a number of G-20 countries, including the U.S., China, Japan, India and a number of European countries. Real GDP of the G-20 economies is expected to decelerate from 2.5% in 2022 to 1.3% in 2023, significantly lower than Moody’s previous estimate of 2.1%.

India, Brazil to be ‘less vulnerable’

However, growth outcomes of the G-20 emerging market economies will vary depending on economic structures, with large domestically driven emerging market economies like India and Brazil expected to be ‘less vulnerable’ to weakening G-7 growth than export-oriented countries. 

Amid a flurry of negative global growth drivers, Moody’s said some country-specific characteristics provide a degree of strength, including the consumer resilience from still strong post-COVID recovery momentum in domestically driven economies, including the U.S., Brazil and India, as seen through robust expenditure on services.  

India’s underlying growth dynamics are fundamentally strong, boosted by a rebound in services activity. Government capital expenditure and manufacturing capacity utilization have also improved, the firm said. 

“…These domestic strengths will continue to support the domestic growth narrative, global financial tightening and slowing external demand will pose downward pressure on growth in 2023,” the rating major noted. After slipping to 4.8% in 2023-24, India’s growth will rise to around 6.4% in the next year, it reckoned. 

Moody’s 2023-24 growth forecast is sharply lower than other agencies. For instance, S&P Global Ratings, which expects India to grow 7.3% this year, expects a 6.5% uptick in 2023-24. 

With retail inflation resurging to 7.5% in September after dipping below 7% in July and being outside the Reserve Bank of India’s target range this year, Moody’s said it expects the central bank to raise the repo rate by another 50 basis points or so, in its bid to anchor inflation expectations and support the Rupee’s exchange rate. One basis point equals 0.01%. 

“Eventually, the RBI will likely shift from inflation management to growth considerations, provided that the rate increases have the desired effect of taming inflationary pressures,” it estimated. 

Noting that India’s ‘deleveraged’ private sector is now well placed to increase capital expenditure, the rating agency also pointed out that India will benefit from shifts in global capital investment away from China, amid diversification of supply chains. 


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