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Moody's cuts India's economic growth forecast to 5.6%
16 Dec '19
2 min read
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India's economic growth forecast for 2019 was reduced to 5.6 per cent last week by Moody's Investors Service, which said government measures do not address the widespread weakness in consumption demand. India’s real gross domestic product (GDP) growth rate was 7.4 per cent in 2018. India's economic slowdown is lasting longer than previously expected, it said.
In its Global Macro Outlook 2020-21, Moody's said economic activity in India will pick up in 2020 and 2021 to 6.6 per cent and 6.7 per cent, respectively, but the pace to remain lower than in the recent past.
Moody's had on October 10 slashed India's economic growth forecast for 2019-20 fiscal to 5.8 per cent from an earlier projection of 6.2 per cent. It recently downgraded India's outlook to negative from stable.
Moody's had attributed the deceleration in October to an investment-led slowdown that has broadened into consumption, driven by financial stress among rural households and weak job creation.
"India's economic growth has decelerated since mid-2018, with real GDP growth slipping from nearly 8 per cent to 5 per cent in the second quarter of 2019 and joblessness rising. Investment activity was muted well before that, but the economy was buoyed by strong consumption demand. What is troubling about the current slowdown is that consumption demand has cooled notably," it said.
None of the measures by the Indian government directly address the widespread weakness in consumption demand, which has been the chief driver of the economy, a news agency cited the Moody’s document as saying.
"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," Moody’s said.
Moody's said while its baseline forecasts assume that economic momentum will pick up, there are risks to the downside. "Slow employment growth is weighing on consumption. The interest rate cutting cycle is not adequately being transmitted, which is hampering investment as companies' borrowing costs remain elevated," it added.
In its Global Macro Outlook 2020-21, Moody's said economic activity in India will pick up in 2020 and 2021 to 6.6 per cent and 6.7 per cent, respectively, but the pace to remain lower than in the recent past.
Moody's had on October 10 slashed India's economic growth forecast for 2019-20 fiscal to 5.8 per cent from an earlier projection of 6.2 per cent. It recently downgraded India's outlook to negative from stable.
Moody's had attributed the deceleration in October to an investment-led slowdown that has broadened into consumption, driven by financial stress among rural households and weak job creation.
"India's economic growth has decelerated since mid-2018, with real GDP growth slipping from nearly 8 per cent to 5 per cent in the second quarter of 2019 and joblessness rising. Investment activity was muted well before that, but the economy was buoyed by strong consumption demand. What is troubling about the current slowdown is that consumption demand has cooled notably," it said.
None of the measures by the Indian government directly address the widespread weakness in consumption demand, which has been the chief driver of the economy, a news agency cited the Moody’s document as saying.
"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," Moody’s said.
Moody's said while its baseline forecasts assume that economic momentum will pick up, there are risks to the downside. "Slow employment growth is weighing on consumption. The interest rate cutting cycle is not adequately being transmitted, which is hampering investment as companies' borrowing costs remain elevated," it added.
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