Citing the weakening rupee and high oil prices, global ratings firm Moody’s Investors Service on Friday, November 11, 2022 cut India’s growth projection for 2022-23 by 7% from an earlier estimate 7.7% and warned that the economy’s growth would slow to just 4.8% in 2023-24.

“The downward revision assumes that higher inflation, high interest rates and slowing global growth will dampen economic momentum more than expected,” the company noted, as the rupee and prices weakened. oil continues to exert pressure on the inflation front.

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

India and Brazil will be “less vulnerable”

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

Amid a flurry of negative global growth drivers, Moody’s said certain country-specific characteristics provide a degree of strength, including consumer resilience in the face of still-strong post-COVID recovery momentum in economies. countries, including the United States, Brazil and India, as seen through robust services spending.

India’s underlying growth momentum is fundamentally strong, driven by a rebound in services activity. Government capital spending and manufacturing capacity utilization also improved, the company said.

“…These domestic strengths will continue to support the domestic growth narrative, with global financial tightening and slowing external demand putting downward pressure on growth in 2023,” the ratings major noted. After dropping to 4.8% in 2023-24, India’s growth will reach around 6.4% next year, he estimated.

Moody’s growth forecast for 2023-24 is significantly lower than that of other agencies. For example, S&P Global Ratings, which expects India to grow 7.3% this year, expects a 6.5% rise in 2023-24.

As retail price inflation picked up to 7.5% in September after falling 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 around another 50 basis points, in its attempt to anchor inflation expectations and support the rupiah exchange rate. One basis point equals 0.01%.

“Eventually, the RBI will likely shift from inflation management to growth considerations, provided rate hikes have the desired effect of containing inflationary pressures,” he said.

Noting that India’s “deleveraged” private sector is now well positioned to increase capital spending, the rating agency also pointed out that India would benefit from a shift in global capital investment away from China. , as part of the diversification of supply chains.