Global rating agency Moody’s on Thursday pared down its India growth forecast for the calendar year 2022 to 8.8% from 9.1% announced in March, stating that high inflation in the wake of the Ukraine conflict will slow down the growth momentum. However, it has retained its earlier forecast for 2023 at 5.4%.
“…the rise in crude oil, food and fertiliser prices will weigh on household finances and spending in the months ahead. Rate increases to prevent energy and food inflation from becoming more generalized will slow the demand recovery’s momentum,” the agency said in its update to Global Macro Outlook 2022-23.
With this, Moody’s joined a number of agencies and analysts to scale down its growth forecast for India following a spurt in commodity prices, especially of energy products, in the aftermath of the Russia-Ukraine war, which has caused massive disruption in the global supply chain. World Bank has trimmed its FY23 forecast for India to 8% from 8.7% and the International Monetary Fund has cut it to 8.2% from 9% (see chart).
However, Moody’s conceded that strong credit growth, a large increase in investment intentions announced by the corporate sector, and a high budgetary allocation to capital spending by the government indicate that the investment cycle in India is picking up.
High-frequency indicators suggest that the momentum from the December quarter carried through into the first four months of 2022 because of strong reopening momentum. “So, unless global crude oil and food prices rise further, the economy seems strong enough to maintain solid growth momentum,” Moody’s said.
It has projected India’s inflation to be around 6.8% for 2022 and 5.2% for 2023.
Moody’s cuts G-20 growth forecasts Moody’s has also trimmed its projections for the G-20 nations. It now expects the G-20 economies to grow 3.1% in 2022, down from 5.9% growth in 2021.
This forecast is 50 basis point lower than the 3.6% growth projected by it in March. It also estimated global economic growth to further slow to 2.9% in 2023, a little below the average growth rate in the decade before the Covid-19 pandemic.
The agency projected China’s growth at 4.5% this year and 5.3% in 2023, while the US and the UK are expected to expand at 2.8% each.
It forecast that advanced economies will grow 2.6% in 2022 and emerging market countries will grow 3.8%, down from its March projections of 3.2% and 4.2%, respectively.
“There are multiple risks that could further dampen growth, including additional upward pressure on commodity prices, longer-lasting supply-chain disruptions, a larger-than-expected slowdown of China’s economy, ongoing monetary policy tightening becoming a catalyst for a recession, and new, more dangerous waves of Covid-19,” the rating agency added.