Moody’s slashes CY19 GDP forecast to 5.6%
Revises prediction from 6.2%, says slump lasting longer than expected
Days after cutting India’s credit rating outlook, Moody’s Investors Service on Thursday cut its calendar year 2019 gross domestic product (GDP) growth forecast to 5.6 per cent from 6.2 per cent, citing consumption slowdown. On Wednesday, SBI and CLSA had forecast FY20 GDP growth to come in at 5 per cent.
Days after cutting India’s credit rating outlook, Moody’s Investors Service on Thursday cut its calendar year 2019 gross domestic product (GDP) growth forecast to 5.6 per cent from 6.2 per cent, citing a consumption slowdown.
On Wednesday, State Bank of India and CLSA forecast India’s 2019-20 GDP growth to come in at 5 per cent, much lower than already downgraded estimates by organisations such as the International Monetary Fund and the Reserve Bank of India, whose last forecasts are still around 6 per cent.
“India's economic slowdown is lasting longer than expected. We have revised down our growth forecast for India,” Moody’s said in a report. While economic activity is expected to pick up in calendar years 2020 and 2021 to 6.6 per cent and 6.7 per cent, respectively, the pace will remain lower than in the recent past, the agency said.
“What is troubling about the current slowdown is that consumption demand has cooled notably,” it said.
Moody’s said none of the measures taken by the government recently, including cutting the corporation tax rates and sector specific announcements, directly address the widespread weakness in consumption demand, which has been the chief driver of the economy.
“Benign domestic inflationary pressures, subdued oil prices, and easing in other parts of the world will allow the central bank to continue to pursue an accommodative monetary policy stance. However, the transmission to lending rates continues to be hindered by the credit squeeze caused by disruption in the non-bank financial sector,” the report said.
Last week, Moody’s cut its outlook for India’s credit ratings to ‘negative’ from ‘stable’, citing the ongoing slowdown, financial stress among rural households, weak levels of job creation, and the liquidity crunch in non-banking financial companies.
Moody’s has affirmed India’s Baa2 long-term sovereign rating, the second lowest investment grade score, but said the negative outlook indicated that an upgrade was unlikely in the near term. Just two years ago, in November 2017, it had upgraded India’s ratings a notch to Baa2 from Baa3.
“Moody’s decision to change the outlook to negative reflects increasing risks that growth will remain materially lower than in the past, partly reflecting lower government and policy effectiveness at addressing long-standing economic and institutional weaknesses than Moody's had previously estimated, leading to a gradual rise in the debt burden from already high levels,” it had said.