Moody’s revises India's real GDP growth expectations: Check details
2 min read 01 Mar 2023, 10:35 AM ISTEconomic momentum in several large emerging market countries, including India, has proved to be more resilient than expected.
PremiumMoody's has published its macro-outlook for G20 economies and has made upward revisions to its 2023 growth forecasts for the US, the euro area and China. Additionally, the credit rating agency has raised growth projections for India, Mexico, Russia, Saudi Arabia and Türkiye.
Moody's now expects India's real GDP growth to be 5.5% in 2023, up from the earlier projection of 5%, and to be 6.5% in 2024. The upward revisions for India also incorporate a significant increase in capital expenditure budget allocation to ₹10 lakh crore (3.3% of GDP) for fiscal year 2023-24, up from ₹7.5 lakh crore for the fiscal year ending in March 2023.
Moody's noted that economic momentum in several large emerging market countries, including India, Brazil, Mexico and Türkiye, had proved more resilient to last year's tightening in the global and domestic financial environment than it had anticipated.
Moody's expects that an eventual letup in monetary policy tightening in the US will help stabilise, if not improve, capital flows to emerging market countries. However, emerging markets will remain vulnerable to bouts of heightened financial market volatility until inflation in advanced economies is firmly in check.
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Inflation will continue to reduce, according to the agency, but a persistent drop to central bank targets is not assured. The US had a slight drop in inflation in January, from 7.1% in December to 6.4% in January, but it is still far higher than the aim of 2%.
The policy rate set by the US central bank is currently between 4.50% and 4.75%, which is the highest level in 15 years. Of note, it was almost zero in the first half of 2022. Increasing interest rates is a tool of monetary policy that frequently works to restrain economic demand, which lowers inflation.
For G20 economies, Moody's projects growth to moderate to 2% in 2023 from 2.7% in 2022, and then to improve to 2.4% in 2024. For G20 advanced economies, the growth estimate for 2022 is now 2.3%, up from the earlier expectation of 2.1%.
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The rating agency also expects G20 advanced economies to report a growth of 0.8% in 2021, exceeding the previous estimate of 0.2%. Moreover, Moody's sees real GDP growth accelerating from 3.5% in 2022 to 3.9% in 2023, up 0.8 percentage points from its November forecasts.
"While there is a clear sense that the end to monetary policy tightening is near, how many more interest rate increases will be appropriate and how long rates will remain restrictive is unknown. The Fed and other central banks would be forced into even more aggressive policy tightening if loosening financial conditions undermine their efforts to subdue aggregate demand," Moody’s said.
(With ANI inputs)
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