Moody's slashes India's economic growth forecast to 7.7% for 2022

Moody's had in May projected India's GDP to expand by 8.8 per cent this year

Moody’s Investors Service Thursday cut India’s economic growth projection for the calendar year 2022 by over one percentage point to 7.7 per cent fearing slowing global growth and rising interest rates may dampen the economic momentum in the country.

Two global investment banks Goldman Sachs and Citigroup too cut the country’s growth projections sharply, a day after government data showed India’s economy grew 13.5 per cent in the April-June quarter, substantially lower than the Reserve Bank of India’s projection of 16.2 per cent.

While Goldman Sachs revised the growth forecast downward to 7 per cent from 7.2 per cent for the current financial year ending March 31, 2023, Citigroup slashed it sharply to 6.7 per cent from 8 per cent earlier.

Morgan Stanley said lower-than-expected growth during April-June created downside risk of 40 basis points to current fiscal year growth estimates.

According to Morgan Stanley’s India economist Upasana Chachra, slightly weaker-than-expected growth in investments and higher drag from net exports contributed to India’s GDP falling short of forecasts.

Moody’s said inflation remained a challenge.

In May, Moody’s had projected India’s economy to grow at 8.8 per cent for the full year.

“Our expectation that India’s real GDP growth will slow from 8.3 per cent from 2021 to 7.7 per cent in 2022 and to decelerate further to 5.2 per cent in 2023 assumes that rising interest rates, uneven distribution of monsoons and slowing global growth will dampen economic momentum on a sequential basis."

“Inflation remains a challenge with the Reserve Bank of India having to balance growth and inflation while also containing the impact of imported inflation from the year-to-date depreciation of the Indian rupee against the US dollar of around 7 per cent,” it said in its update on Global Macro Outlook 2022-23.

It, however, said that the economic growth could be stronger than projected if the private sector capex cycle were to gain steam.