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Moody’s lowers India’s 2022 growth forecast to 8.8%

The rating agency argued that the rise in crude oil, food and fertilizer prices will weigh on household finances and spending in the months ahead and rate increases to check energy and food inflation “will slow the demand recovery’s momentum”. (MINT_PRINT)Premium
The rating agency argued that the rise in crude oil, food and fertilizer prices will weigh on household finances and spending in the months ahead and rate increases to check energy and food inflation “will slow the demand recovery’s momentum”. (MINT_PRINT)

  • “We have lowered our calendar-year 2022 growth forecast for India to 8.8% from our March forecast of 9.1%, while maintaining our 2023 growth forecasts at 5.4%,” Moody’s said.

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Rating agency Moody’s on Thursday lowered India’s GDP growth forecast to 8.8% for the current year from its March forecast of 9.1% stating that increase in policy rates to curb record high inflation would slow the recovery in demand.

After an off-cycle 40 basis point rate hike, RBI has indicated more hikes in the future policy meets. However, the government has been taking a number of steps including a cut in excise duty on petrol & diesel and export curb on key food items.

“We have lowered our calendar-year 2022 growth forecast for India to 8.8% from our March forecast of 9.1%, while maintaining our 2023 growth forecasts at 5.4%," Moody’s said.

The rating agency argued that the rise in crude oil, food and fertilizer prices will weigh on household finances and spending in the months ahead and rate increases to check energy and food inflation “will slow the demand recovery’s momentum".

Official figures showed that retail inflation in the country is currently at an 8-year high of 7.79%. Economists have projected that CPI based inflation to remain above RBI’s tolerance level for the entire year with greater stress in the rural areas than in the urban pockets.

The revision in growth projection was not limited to India. Moody’s lowered global growth projections for 2022 and 2023 as Russia’s invasion of Ukraine and prolonged pandemic lockdowns in China is seen adding to supply shocks and is stoking inflation.

“Advanced economies will expand 2.6% in 2022 and emerging market countries will grow 3.8%, down from March forecasts of 3.2% and 4.2%, respectively, Moody’s Investors Service said in a report today," the rating agency added.

Currently high inflation rates could persist for several more months, owing to elevated energy and food prices. However, Moody’s stated that except for Russia, it does not “currently" expect a recession in any G-20 country in 2022 or 2023.

“Still, there are multiple risks that could further undermine the economic outlook, including additional upward pressure on commodity prices, longer-lasting supply-chain disruptions, or a larger than expected slowdown in China," Moody’s said.

On the geo-political risks threatening growth Moody’s observed that the global world order is being reshaped by great-power competition and geopolitical realignment.

Geopolitical rifts pitting China and Russia against the US and other Western powers “have magnified" over the last two years, it added.

Besides, Russia’s invasion of Ukraine represents a further elevation of geopolitical risks and if geopolitics starts guiding more economic decisions and if the world moves into a period in which countries align differently on specific issues, “policy choices will become less predictable and geopolitical and economic uncertainty will rise".

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