US ratings agency Moody’s Investors Services has again cut India’s real GDP growth projections to 7.0% for 2022 from 7.7% as “higher inflation, higher interest rates and slowing global growth will dampen economic momentum more than expected.”
According to Moody’s, growth is expected to slow to 4.8% in 2023 and then pick up to around 6.4% in 2024. India’s 7% growth in 2022 is still higher than China’s forecast of 3% .
Moody’s had cut India’s GDP projection for the year to 7.7% from May’s 8.8% in September.
“Weakening rupiah and high oil prices continue to put upward pressure on inflation, which has remained above the Reserve Bank of India’s (RBI) 4% plus or minus 2% inflation target range for much of this year,” it said in a report. He said the global economy is on the brink of a slowdown amid extraordinarily high levels of uncertainty amid persistent inflation, monetary policy tightening, fiscal challenges, geopolitical shifts and volatility. financial markets. Global growth will slow in 2023 and remain sluggish in 2024. Still, a period of relative stability could emerge by 2024 if governments and central banks manage to steer their economies through the current challenges, he said.
Headline annual CPI inflation rose to 7.5% in September after falling below 7.0% in July. Wholesale price inflation, however, has fallen for four consecutive months, falling from a high of 16.6% in May to 10.7% in September.
From May to September, the RBI raised the pension rate a cumulative 190 basis points to 5.9% in order to contain inflation risks. “We expect the RBI to raise the repo rate by around another 50 basis points as part of its aim to anchor inflation expectations and support the exchange rate. Eventually, the RBI will likely shift from inflation management to growth considerations, provided rate hikes have the desired effect of containing inflationary pressures,” Moody’s said.
He said underlying growth momentum is fundamentally strong, driven by a rebound in services activity. “Government capital expenditure and manufacturing capacity utilization have also improved. September exports are down from the peak in March, but are still about 30% above pre-pandemic levels. Non-food credit growth is showing strong momentum,” Moody’s said.
The private sector, having deleveraged following the RBI’s asset quality review in 2015, is now well placed to increase investment spending. “In addition, the production-linked incentive program to attract investment in 14 key manufacturing sectors is showing results. While these domestic strengths will continue to support the domestic growth narrative, global financial tightening and slowing external demand will put downward pressure on growth in 2023,” he said.
Moody’s said China’s real GDP is expected to grow 3.0% this year, from 3.5% in August, and growth is expected to reach around 4.0% in 2023 and 2024.
Moody’s said real GDP growth for G-20 economies is expected to slow to 1.3% in 2023, significantly lower than our previous estimate of 2.1% and down from an estimated growth of 2. .5% this year. “The decline in economic activity in advanced economies, particularly in Europe and North America, will lead to the sharp moderation in growth in 2023. In 2024, global economic activity will pick up, but only at a rate of below-trend growth of 2.2%,” he said.
The US dollar, measured by the Federal Reserve The Board’s nominal trade-weighted dollar index is up 14.2% year-to-date against a basket of developed market currencies and 7.4% against emerging market currencies . “The main contributors to dollar strength are carry trades to take advantage of the interest rate arbitrage created by the fedrate-tightening cycle and global risk aversion sentiment,” he said.
But appreciation against other currencies is not uniform, with interest rate and growth differentials, and sensitivity to geopolitical and other risks factoring into portfolio managers’ considerations of how to position their portfolios defensively, Moody’s said.