S&P lowers FY23 India growth forecast to 7.3% on war and inflation
One big worry for the agency is inflation remaining higher for longer, requiring central banks to raise rates more than is currently priced in, risking a harder landing, including a larger hit to output and employmentIndia, however, will remain the fastest growing major economy in the world, according to the report
NEW DELHI : S &P Global Ratings on Wednesday lowered India’s FY23 growth forecast to 7.3% from 7.8% in March in view of higher commodity and energy prices, broad-based inflation, and the Russia-Ukraine conflict, which has changed the global macro picture. India, however, will remain the fastest growing major economy in the world.
S&P said in the beginning of 2022, it looked as if for most economies, the effects of covid were retreating and the question was when they will regain the pre-pandemic trajectory of output. However, the macro picture changed following the outbreak of the Russia-Ukraine war in February, which led to a spike in energy and commodity prices.
The second factor impacting growth is inflation, which has turned out to be higher, broader based, and more persistent than anticipated even a few quarters ago.
The weakness in China, spillovers from the war in Ukraine, domestic monetary tightening, and rapidly tightening global financial conditions are headwinds for emerging market economies, S&P Global said.
Weak March-quarter numbers for many countries, higher energy and commodity prices, a longer-than-expected Russia-Ukraine conflict, faster monetary policy normalization, and slow Chinese growth were variables that have worsened since its March forecast, it said.
“Emerging markets in Asia are the most at risk from weakening consumption in China." It said they are also among the most at risk from supply-chain disruptions. S&P also raised Consumer Price Index-based inflation for India to 6.3%, up by 90 basis points (bps) from March estimates.
In early April, the Reserve Bank of India (RBI) had revised India’s FY23 growth outlook from 7.8% to 7.2% and the International Monetary Fund (IMF) had revised it from 9% to 8.2% because of several factors including the war in Europe and high commodity prices.
Experts said RBI will further tighten the monetary policy at its June review following the 40 basis points (bps) increase in repo rate to 4.40% earlier this month, the first rate hike in nearly four years.
According to policymakers, a normal southwest monsoon could yield robust agricultural output and boost rural consumption.
There are significant uncertainties over how the Russia-Ukraine conflict will develop, but it has not spread beyond the two countries and so far the direct economic impact of higher energy and commodity prices has been limited, S&P said. A big worry, however, is inflation, which is expected to be at elevated levels and for a long period. This will prod central banks to raise rates more than what was priced in, which risks a harder landing, including a larger hit on output and employment, it said.
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