India in economic sweet spot amid global headwinds: Moody’s
- The rating agency sees India’s economy growing at 7.2% in 2024 and inflation moderating despite a temporary uptick.
New Delhi: India’s economy is in a sweet spot and its inflation is expected to moderate despite a temporary spurt, Moody’s said, projecting optimism about the country’s growth prospects despite recent underwhelming data.
India’s economy is growing robustly at an estimated 7.2% in 2024, Moody’s Investors Service India Pvt. Ltd said on Friday in an update on the growth prospects for G20 economies. It added that India’s economy has the potential to sustain high growth rates as strong private sector financial health reinforces a virtuous economic cycle.
The agency also said a shift in global supply chains will offer new opportunities for India, Mexico and other Southeast Asian countries.
Moody’s forecast for calendar year 2024 aligns with the Reserve Bank of India’s projection of a 7.2% real GDP growth for this financial year (2024-25). The Union finance ministry’s economic survey in July projected a conservative 6.5-7% growth, but acknowledged that market expectations are on the higher side.
India’s retail inflation based on the consumer price index (CPI) jumped to a 14-month high in October, and wholesale inflation to a four-month high, due to rising food prices.
Despite this, Moody’s said, India’s inflation should moderate toward RBI’s inflation target (of 2-6%) in the coming months as food prices ease amid higher sowing and adequate food grain buffer stocks. Retail inflation in October, however, breached RBI’s target, climbing to 6.21%.
The high inflation figures dimmed hopes of monetary policy easing in December. In October, RBI’s rate-setting panel had kept the benchmark repo rate unchanged at 6.5% for a 10th straight meeting, but shifted its policy stance from ‘withdrawal of accommodation’ to ‘neutral’.
RBI governor Shaktikanta Das said on 9 October that the monetary policy committee had decided to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth.
On Thursday, Union minister of commerce and industry Piyush Goyal said RBI should cut its benchmark rate to boost economic growth, adding that it was an “absolutely flawed theory” to consider food inflation while deciding on the rates.
Food inflation has remained a persistent worry for India’s policymakers and regulators—it jumped to 10.87% in October, the highest in 15 months.
Also read | All about the inflation spike: how, why & when
Slowing momentum
For G20 economies, which include India, the US, the UK, Japan and China, Moody’s forecast a growth of 2.8% in 2024, down from 3.0% in 2023.
Most G20 economies will experience steady growth and continue to benefit from policy easing and supportive commodity prices, the agency said.
But post-election changes in the US’ domestic and international policies could potentially accelerate global economic fragmentation, complicating ongoing stabilization, it added, quoting Madhavi Bokil, senior vice president at Moody’s Ratings and author of the report.
Momentum in 2025 and 2026 is set to fall, with growth rates at around 2.6% and 2.5%, respectively, it added.
Moody’s expects advanced G20 economies to settle at a somewhat softer 1.7% growth in 2025 and 1.6% in 2026, down from 1.8% in 2024. Emerging G20 markets will grow by 4.3% in 2024, down from 4.8% in 2023 and then decelerate to 3.9% in 2025 and 3.8% in 2026, it said.
Headwinds and opportunities
Global trade is set to witness more headwinds in the coming months, Moody’s forecast. “Trade tensions and geopolitical stresses, particularly between the US and China, are primary risks to the global macroeconomic outlook. Potential long-term geoeconomic fragmentation could complicate global trade and financial connectedness,” it said.
Increasing trade protectionism and a push by several large economies to strengthen their domestic industries also make external demand a less reliable source of growth, Moody’s said, adding that economies with robust domestic drivers of growth will experience greater resilience and stability.
Global policy interest rates are expected to move closer to neutral by 2025, with core inflation rates declining to near central bank targets, it added.
Several G20 economies, including the US, Europe, India, Brazil and Indonesia, are exploring industrial policies that can improve their economic resilience and potentially alter the structure of their economies.
Supply chain relocation and investment from multinational companies and Chinese domestic manufacturing firms looking to geographically diversify production create additional opportunities for India, Mexico and several Southeast Asian countries, according to the report.
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Business NewsEconomyIndia in economic sweet spot amid global headwinds: Moody’s
First Published:15 Nov 2024, 03:42 PM IST
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