Moody’s Investors Service on Thursday cut India’s economic growth projection to 8.8% for 2022 from 9.1% earlier, citing high inflation.
In its Global Macro Outlook 2022-23 update, Moody’s said high-frequency data suggests growth momentum from the December 2021 quarter has continued into the first four months of this year.
However, rising crude oil, food and fertilizer prices will weigh on household finances and spending in the coming months. Raising rates to prevent energy and food inflation from becoming widespread will slow the momentum of demand recovery, he said.
“We have lowered our 2022 calendar year growth forecast for India to 8.8% from our March forecast of 9.1%, while maintaining our 2023 growth forecast at 5.4% “said Moody’s.
Strong credit growth, a sharp increase in announced investment intentions by the corporate sector and a high budget allocation to capital spending by the government indicate that the investment cycle is strengthening.
“But unless global crude oil and food prices rise further, the economy looks strong enough to maintain solid growth momentum,” Moody’s added.
For 2022 and 2023, he predicted inflation of around 6.8% and 5.2%, respectively.
A rise in prices for everything from fuel to vegetables and cooking oil pushed WPI, or wholesale price-based inflation, to a record high of 15.08% in April and inflation retail to a nearly eight-year high of 7.79%.
High inflation prompted the Reserve Bank to hold an unscheduled meeting to raise the benchmark interest rate by 40 basis points to 4.40% earlier this month.
In November last year, Moody’s predicted economic growth of 9.3% for India in the current fiscal year (April-March).
Earlier this month, S&P Global Ratings cut India’s growth projection for 2022-2023 to 7.3% from 7.8% earlier due to rising inflation and conflict Russian-Ukrainian longer than expected.
In March, Fitch cut India’s growth forecast to 8.5% from 10.3%, citing steeply high energy prices due to the Russian-Ukrainian war.
In April, the World Bank cut India’s GDP forecast for 2022-2023 to 8% from 8.7% previously forecast, while the IMF cut the projection to 8.2% from 9%.
The Asian Development Bank (ADB) forecast India’s growth at 7.5%, while RBI cut its forecast last month to 7.2%, from 7.8%, amid volatile markets. crude oil prices and supply chain disruptions due to the ongoing Russian-Ukrainian war.
In its Thursday report, Moody’s said it lowered its global growth projections and raised its inflation forecasts for 2022 and 2023 due to several negative factors.
The main drivers of slowing economic momentum are continued supply shocks fueling inflation and eroding consumers’ purchasing power, and a move towards more hawkish monetary policy globally, accompanied by a financial market volatility, asset repricing and tighter credit conditions.
Stating that the post-pandemic economic recovery faces a complex set of challenges, he said several cross-currents have hit the global economy at the same time and will slow growth more significantly than he envisioned there. only a few months old.
“The economic fallout from the Russian-Ukrainian military conflict continues, as does the effect on global growth of China’s slowdown amid strict enforcement of its zero COVID policy. Although we expect headline inflation rates to decline over the next year, price levels remain elevated and will weigh on consumer demand,” Moody’s said.
Moody’s predicts that China will grow by 4.5% this year and 5.3% in 2023. While in the US and UK, GDP growth is expected to be around 2.8% each.