Rupee, oil prices key factors behind decline in 2022-23; Growth to slip below 5% next year
Rupee, oil prices key factors behind decline in 2022-23; Growth to slip below 5% next year
Citing a weak rupee and higher oil prices, global rating firm Moody’s Investors Service on Friday, November 11, 2022 slashed India’s growth forecast for 2022-23 to 7%. up from an earlier estimate of 7.7% And warned that the growth rate of the economy would slow down to just 4.8% in 2023-24.
“Downward correction will dampen the economic momentum ahead of our expectation given higher inflation, higher interest rates and slower global growth,” the firm said, adding that a weaker rupee and oil prices continue to put pressure on the inflation front. .
In its latest Global Macro Outlook for 2023-24, Moody’s downgraded forecasts for several G-20 countries, including the US, China, Japan, India and several European countries. The real GDP of G-20 economies is expected to decline from 2.5% in 2022 to 1.3% in 2023, well below Moody’s previous estimate of 2.1%.
India, Brazil to be ‘less vulnerable’
However, growth outcomes for G-20 emerging market economies will vary depending on economic structures, with large domestically driven emerging market economies such as India and Brazil leading to weaker G-7 growth than export-oriented countries. Less vulnerable’ is expected.
Amid a flurry of negative global growth drivers, Moody’s said some country-specific features including consumer resilience from still strong post-COVID recovery momentum in domestically driven economies including the US, Brazil and India to some extent. provides, as seen. Huge expenditure on services.
India’s underlying growth dynamic is fundamentally strong, fueled by a rebound in service activity. The firm said government capital expenditure and manufacturing capacity utilization have also improved.
“… these domestic strengths will continue to support the domestic growth narrative, with global financial consolidation and slowing external demand putting pressure on growth in 2023,” the ratings chief said. After falling to 4.8 per cent in 2023-24, India’s growth rate will increase to around 6.4 per cent next year.
Moody’s growth forecast for 2023-24 is significantly lower than other agencies. For example, S&P Global Ratings, which expects India to grow 7.3% This year, a growth of 6.5% is expected in 2023-24.
Retail inflation rose to 7.5% in September after falling below 7% in July and out of the Reserve Bank of India’s target range this year, with Moody’s saying it expects the central bank to hike the repo rate by 50 basis points . Its bid to lower inflation expectations and support the exchange rate of the rupee. One basis point is equal to 0.01%.
“eventually, RBI to withdraw from inflation management taking into account the growth, provided that the rate hike has the desired effect of overcoming inflationary pressures,” it estimated.
Noting that India’s ‘delivered’ private sector is now well prepared to increase capital expenditure, the rating agency also pointed out that India will benefit from shifting global capital investment away from China amid diversification of supply chains.