Moody’s lowers India’s CY22 growth forecast to 8.8% as inflation & rate hikes weigh

While India‘s high-frequency indicators point to an improving momentum in the first four months of this year, the rise in crude oil, food, and fertilizer prices will weigh on household finances and spending in the months ahead, as per a ratings agency Moody’s.

In the May update of its Global Macro Outlook 2022-23, Moody’s has lowered its calendar-year 2022 growth forecast for India to 8.8% from the earlier forecast of 9.1% made in March. It has maintained its 2023 growth forecasts at 5.4%.

“High-frequency data suggest that the momentum from Q4 2021 carried through into the first four months of this year because of strong reopening momentum,” it said.

“Strong credit growth, a large increase in investment intentions announced by the corporate sector, and a high budget allocation to capital spending by the government indicate that the investment cycle is strengthening.”

The momentum in the growth of the Indian economy will slow down as the rate increases to prevent energy and food inflation from becoming more generalized. However, if the global crude oil and food prices don’t rise further, the economy seems strong enough to maintain solid growth momentum, Moody’s said.

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Global outlook

Moody’s expects the G-20 economies to grow 3.1% in 2022, down from 5.9% growth in 2021. This forecast is half a percentage point lower than the 3.6% growth projection in its March outlook.

“Except for Russia, we do not currently expect a recession in any G-20 country in 2022 or 2023,” said Madhavi Bokil, Senior Vice President/CSR at Moody’s. “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. Aggressive monetary tightening, amid worries of long-term inflation expectations getting unanchored, could also become a catalyst for a recession.”

There are multiple risks that could further dampen growth, including additional upward pressure on commodity prices, longer-lasting supply-chain disruptions, a larger-than-expected slowdown of China’s economy, ongoing monetary policy tightening becoming a catalyst for a recession, and new, more dangerous waves of COVID-19.

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