Moody’s pares India’s 2022 growth hopes to 8.8%

‘Rising inflation to hit consumption; rate increases to slow growth momentum’

Moody’s Investors Service has lowered India’s growth forecast for calendar year 2022 to 8.8% from 9.1% projected in March, citing the rise in crude oil, food and fertilizer prices that will weigh on household finances and spending even as interest rate increases to curb inflation will slow the momentum in demand recovery.

Moody’s said it expected inflation to average 6.8% through 2022, but added that the Indian economy seemed strong enough to maintain solid growth momentum — unless global crude oil and food prices rise further.

“Although we expect headline inflation rates to ease through next year, price levels remain high and will weigh on consumer demand,” Moody’s said about global price pressures, noting that inflation and rising rates would temper India’s economic growth as well.

“High-frequency data suggest that the momentum from Q4 2021 [October to December] carried through into the first four months of this year because of strong reopening momentum,” the firm said about India’s recent economic trajectory.

“Strong credit growth, a large increase in investment intentions announced by the corporate sector, and a high budget allocation to capital spending by the government indicate that the investment cycle is strengthening. However, the rise in crude oil, food and fertilizer prices will weigh on household finances and spending in the months ahead,” it added. Moreover, the rate increases to prevent energy and food inflation from becoming more generalised will slow the demand recovery’s momentum.

In an update to its Global Macro Outlook for 2022-23 on Thursday, Moody’s lowered global growth projections and raised inflation forecasts, blaming the slowing growth momentum on multiple negative factors. These include ongoing supply shocks that are stoking inflation and eroding consumer purchasing power, and a shift toward more hawkish monetary policy globally, accompanied by financial market volatility, asset repricing and tighter credit conditions.

Growth hopes for G-20 nations have been pared from 3.6% to 3.1% for this year, virtually half the 5.9% growth recorded last year. “We expect global economic growth to further slow to 2.9% in 2023, a little below the average growth rate in the decade before the pandemic,” the rating major said.