Moody’s cuts growth forecast

Growth in India should benefit from an acceleration in rural consumption: Moody’s

New Delhi, May 30: Moody’s Investors Service on Wednesday cut India’s 2018 growth forecast to 7.3 per cent from the previous estimate of 7.5 per cent, saying the economy is in cyclical recovery but higher oil prices and tighter financial conditions will weigh on the pace of acceleration.

Moody’s, however, maintained its 2019 growth forecast at 7.5 per cent.

“The Indian economy is in cyclical recovery led by both investment and consumption. However, higher oil prices and tighter financial conditions will weigh on the pace of acceleration.

“We expect GDP growth of about 7.3 per cent in 2018, down from our previous forecast of 7.5 per cent. Our growth expectation for 2019 remains unchanged at 7.5 per cent,” it said in an update of its ‘Global Macro Outlook: 2018-19’.

Moody’s said growth should benefit from an acceleration in rural consumption, supported by higher minimum support prices and a normal monsoon. “The private investment cycle will continue to make a gradual recovery, as twin balance-sheet issues — impaired assets at banks and corporates slowly get addressed through deleveraging and the application of the Insolvency and Bankruptcy Code,” it said.

Also, the ongoing transition to the new GST regime could weigh on growth somewhat over the next few quarters, which poses some downside risk to the forecast, it said. “However, we expect these issues to moderate over the course of the year.”

For the world economy, Moody’s expected 2018 to be a year of robust global growth, similar to 2017.

“However, global growth will likely moderate by the end of 2018 and in 2019 as a result of a number of advanced economies reaching full employment, and because of rising borrowing costs and tighter credit conditions in both advanced and emerging market countries that will hamper further acceleration,” it said.

The G-20 countries, it said, will grow 3.3 per cent in 2018 and 3.2 per cent in 2019. The advanced economies will grow at a moderate 2.3 per cent in 2018 and 2.0 per cent in 2019, while G-20 emerging markets will remain the growth drivers, at 5.2 per cent in both 2018 and 2019, down from 5.3 per cent in 2017.

Moody’s said downside risks to growth stem from emerging markets turmoil, oil price increases and trade disputes.

“The ongoing financial market turbulence in emerging market countries poses risks of a broader negative spillover effect on growth for a range of countries beyond Argentina and Turkey, while there is a risk that high oil prices will be detrimental to consumption demand. A re-escalation of trade tensions between the US and China is another risk factor to growth. Political concerns add to downside risks in Brazil, Mexico and Italy,” it said. — PTI