GDP growth to moderate in second half of 2007, says Moody’s

GDP growth to moderate in second half of 2007, says Moody’s

New Delhi, 19 September The Reserve Bank’s tight monetary policy is likely to moderate the growth rate of Indian economy in the second half of the current calendar year, the economic analysis arm of international rating agency Moody’s has said.

“Real GDP is expected to moderate in the second half of 2007 as tighter monetary conditions dampen the demand for credit and take some of the steam out of consumer spending," Moody’s said in its report.

Although India is expected to maintain a strong growth momentum over the forecast horizon, it will not match the 9% plus expansion witnessed in recent years, the report, “India Outlook: The Elephant’s Charge Expected to Slow", said.

Nevertheless, strong construction and infrastructure spending would partially offset the expected slowdown in consumer demand, the report said.

Indian economy, Asia’s fourth largest, grew at a rapid pace of 9.3% during April-June of 2007 after a 9.45 expansion in the entire 2006-07. However, many economists and analysts expect growth rate to slow down to 8.5-9% in subsequent quarters. Early indications already point out to a moderation with industrial production, which accounts for one-sixth of the GDP, slowing down to 7.1% in July.

Moody’s said India’s booming real estate market is also expected to weather the recent financial market storms and report solid growth through the second half of the year as the sector reportedly has very little direct exposure to the US subprime mortgage market.

In addition, foreign direct investment flows into infrastructure development projects are expected to remain strong. This means the construction sector will also continue to expand at a robust pace, it said.