The revision comes after the investment bank revised its forecast for global growth to 2.9% for 2022, about 40 basis points (bps) below consensus and less than half of the 6.2% growth of last year.

Flagging global slowdown, surging oil prices and weak domestic demand, Morgan Stanley has lowered its forecasts for India’s economic growth for the current fiscal year to 7.6% from 7.9%, and to 6.7% from 7% for FY24. The revision comes after the investment bank revised its forecast for global growth to 2.9% for 2022, about 40 basis points (bps) below consensus and less than half of the 6.2% growth of last year.

Global growth and trade are likely to slow down in response to not only geopolitical tensions but to the waning fiscal impetus, tightening monetary policy in developed markets, and a continuing drag from lockdowns in China, it said in a note.“The key channel of transmission of geopolitical tensions to filter into the domestic economy is through persistently higher commodity prices, in particular, higher oil prices,” Upasana Chachra, India Economist at Morgan Stanley, said.

“India’s exceptionally high dependence on imports for oil makes it vulnerable to volatility in global crude prices. As such, a supply side-driven surge in oil prices has negative ramifications for India’s growth and macro stability fundamentals.”
The expected global growth slowdown is likely to impinge on India’s exports, further hampering growth prospects. India’s overall ratio of exports to GDP is at 18.7%, and the domestic production and capex cycles are highly correlated with global trends in growth and exports, Chachra said.

Amid the negative terms of trade shock due to higher oil and other commodity prices, India’s macro stability indicators were likely to worsen. Morgan Stanley expects India’s consumer inflation to average 6.5% this fiscal year and projects that the current account deficit will widen to a 10-year high, to about 3.3% of the GDP.

“To preserve macro stability, we expect the central bank to front-load rate hikes,” Chachra said. “We are building in an increase of 50 basis points hike each in the June and August meetings, and we expect 25 basis points increases thereafter. We expect the terminal rate to be higher, at 6.5% (against 6% previously), as inflation remains higher for longer.”

https://www.financialexpress.com/economy/morgan-stanley-lowers-indias-fy23-growth-forecast-to-7-6/2521404/