June 28, 2022
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India’s economic growth forecast for 2022 has been slashed by Moody’s to 8.8%

Moody’s Investors Service cut India’s economic growth forecast for 2022 from 9.1 percent to 8.8 percent on Thursday, citing high inflation. High-frequency data suggests that the growth momentum from December quarter 2021 carried over into the first four months of this year, according to Moody’s Global Macro Outlook 2022-23.

In the months ahead, however, rising crude oil, food, and fertiliser prices will put a strain on household finances and spending. According to the report, raising interest rates to prevent generalised energy and food inflation will stifle the demand recovery’s momentum.

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

The investment cycle is strengthening, as evidenced by strong credit growth, a large increase in corporate investment intentions, and the government’s high budget allocation to capital spending.

“However, unless global crude oil and food prices rise even higher,” Moody’s added, “the economy appears strong enough to maintain solid growth momentum.”

Inflation is expected to be around 6.8% and 5.2 percent in 2022 and 2023, respectively.

Prices rose across the board in April, pushing WPI or wholesale price-based inflation to a new high of 15.08 percent and retail inflation to a near-eight-year high of 7.79 percent.

Inflationary pressures prompted the Reserve Bank to hold an unscheduled meeting earlier this month to raise the benchmark interest rate by 40 basis points to 4.40 percent.

It stated that the post-pandemic economic recovery faces a complex set of challenges, claiming that several cross-currents have hit the global economy all at once, slowing growth more than it anticipated only a few months ago.

“The economic fallout from the military conflict between Russia and Ukraine is still unfolding, as is the impact on global growth from China’s slowdown amid strict enforcement of its zero-COVID policy. Although we expect headline inflation to moderate next year, price levels remain high, putting downward pressure on consumer demand, according to Moody’s.

China is expected to grow at 4.5 percent this year and 5.3 percent in 2023, according to Moody’s. While GDP growth in the United States and the United Kingdom is expected to be around 2.8 percent each.

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