Moody’s Investors Service cut India’s growth forecast for calendar year 2022 to 8.8% from the previously forecast growth of 9.1% in March, while maintaining the country’s growth forecast for 2023 at 5.4%.
Moody’s said higher crude oil, food and fertilizer prices are weighing on household finances and spending. At the same time, interest rate hikes to fight inflation will slow the pace of demand recovery.
Moody’s predicts average inflation of 6.8% through 2022, saying India’s economy looks firm to maintain strong growth momentum – unless global crude oil and food prices rise again.
“Although we expect headline inflation rates to decline next year, price levels remain elevated and will weigh on consumer demand,” noting that inflation and interest rate hikes will slow India’s economic growth.
“High-frequency data suggests that the momentum in the fourth quarter of 2021 [October to December] continued in the first four months of this year due to strong reopening momentum,” the company noted in the May update to its Global Macro Outlook 2022-23 on recent economic developments in the country.
“Strong credit growth, a sharp increase in investment intentions announced by the corporate sector and a high budgetary allocation to capital expenditure by the government indicate that the investment cycle is strengthening. However, the rise in oil prices crude oil, foodstuffs and fertilizers will weigh on household finances and spending in the coming months,” he added.
Moody’s forecasts global economic growth to slow further to 2.9% in 2023, a notch below the average growth rate ten years before the 2020 pandemic.
The rating agency also cut 2022 growth projections for G-20 economies to 3.1%, down from 5.9% growth in 2021.
“With the exception of Russia, we currently do not expect any recession in any G-20 country in 2022 or 2023,” said Madhavi Bokil, senior vice president at Moody’s.
“Nevertheless, there are still many risks that could undermine the economic outlook, including further upward pressure on commodity prices, longer-lasting supply chain disruptions, or a deeper-than-expected slowdown in China. aggressive, amid fears of unanchoring long-term inflation expectations, could also become a catalyst for a recession,” she added.
Advanced economies could experience a growth rate of 2.6% in 2022, 1.2% less than what emerging countries could experience.
In its previous forecast, Moody’s predicted that advanced and emerging markets would grow by 3.2% and 4.2%, respectively.
Moody’s said the post-pandemic global economic recovery will face a complex new set of challenges.
“Several headwinds have hit the global economy at once and will slow growth more significantly than we anticipated just a few months ago. 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 high and will weigh on consumer demand,” he added.