Moody's Raises India's 2023 GDP Growth Forecast to 6.7%, Cites 'Robust Underlying Economic Momentum'

A day after the official data showed India’s Q1 FY23 GDP growth at 7.8 per cent, Moody’s Investors Service on Friday raised India’s growth projection for the calendar year 2023 to 6.7 per cent citing robust underlying economic momentum. It, however, also pointed to upside risk to India’s economic growth performance.

In the Global Macro Outlook 2023-24 (August update), Moody’s said strong services expansion and capital expenditures have propelled India’s 7.8 per cent real GDP growth in the second (April-June) quarter from a year ago.

“Given the robust underlying economic momentum, we also recognise further upside risk to India’s economic growth performance,” Moody’s said while raising its 2023 calendar year growth forecast for India to 6.7 per cent, from 5.5 per cent. The global rating agency, however, lowered 2024 growth forecast to 6.1 per cent from 6.5 per cent, citing a high base of 2023.

India’s monsoon season which runs from June to October could also see below average rainfall, resulting in higher food prices. As of August 29, the India Meteorological Department has estimated a 9 per cent rain deficiency across the country. If El Nio this year proves to be particularly strong in the second half of 2023 and early 2024, agricultural commodity prices could shoot up, Moody’s added.

The Reserve Bank of India’s monetary policy committee left the repo rate unchanged for a third time in August. The recent uptick in food price inflation and uncertain El Nio-related weather conditions will delay monetary policy easing consideration to early next year, it said.

“Domestic demand in India remains buoyant, and as long as core inflation remains relatively stable, rate hikes are also unlikely,” Moody’s added. With regard to global growth, the US-based agency said tight financial conditions will continue to dampen global economic growth through 2023 and keep growth below trend in 2024.

For the G20, “we expect real gross domestic product (GDP) growth to slow to 2.5 per cent in 2023 and 2.1 per cent in 2024, from 2.7 per cent in 2022”. With regard to growth in China, Moody’s said the economy is facing “considerable growth challenges, causing us to cut our 2024 growth expectations. We have lowered our growth expectation for 2024 to 4 per cent from 4.5 per cent”.

“This expectation assumes a stabilization and turnaround of economic indicators with modest support from authorities. We recognize, however, that there are significant downside risks to growth and that policy measures may prove inadequate to prevent further deterioration,” Moody’s added. Economic activity in the first half of 2023 outpaced our expectations in multiple countries, including India, Moody’s said.

Moody’s had last month affirmed India’s sovereign rating at ‘Baa3’– the lowest investment grade. Earlier this year, Moody’s had projected economic growth in 2023-24 fiscal (April-March) at 6.1 per cent, lower than 7.2 per cent clocked in 2022-23.

(With Inputs from PTI)