Having witnessed a sharp Covid-induced contraction of 6.7% in 2020, India grew 8.2% in 2021, according to Moody’s.

Global rating agency Moody’s on Thursday trimmed its India growth forecast for the calendar year 2022, to 9.1% from 9.5% announced earlier, saying elevated fuel and fertiliser import bills in the wake of the Russia-Ukraine conflict would weigh on the government’s renewed push for capital expenditure. It also cut its 2023 growth forecast for the country marginally to 5.4%.

Given the surge in oil prices, the agency has sharply raised its inflation forecast for India to 6.6% for 2022 and 5% for 2023, up 160 basis points and 80 basis points, respectively, from the earlier projections.

Retail inflation hit an average of 5.4% between April and February, according to the government data. It scaled an eight-month peak of 6.07% in February, having breached the upper band of the Reserve Bank of India’s (RBI) medium-term target of 2-6% for a second straight month.

In its latest report on Global Macro Outlook 2022-23, Moody’s said global economic growth, too, will suffer and inflation will pick up as a fallout from Russia’s invasion of Ukraine. The conflict has significantly altered global economic backdrop through three main channels — surge in commodities prices, risks to the global economy from financial and business disruption, and dent in sentiment due to heightened geopolitical risks.

“India is particularly vulnerable to high oil prices given that it is a large importer of crude oil,” the agency said. However, it also noted that the country’s agricultural exports will benefit in the short term from high prevailing prices, given that India is a surplus producer of grain. “High fuel and potentially fertiliser costs would weigh on government finances down the road, potentially limiting planned capital spending,” it said. “Our forecast revisions also factor in the somewhat stronger underlying momentum than we had not accounted for previously,” it added.

Having witnessed a sharp Covid-induced contraction of 6.7% in 2020, India grew 8.2% in 2021, according to Moody’s.

The report said Russia is the only G-20 economy to shrink in the next two years, as it forecast a 7% contraction for Moscow for 2022 and 3% for 2023, down from the growth rates of 2% and 1.5%respectively, announced before its invasion of Ukraine. China’s economy is projected to grow 5.2% in 2022 and 5.1% in 2023, it added.

Commenting on the global economy, the agency highlighted that the potential for fresh Covid waves, monetary policy missteps and social risks associated with high inflation could dampen the growth outlook.

“The new negative energy price shock poses the risk of more pervasive inflation for longer and will also lead to higher interest rates, which will further weaken consumer spending and private investment,” the report said.

Supply disruptions of metals and other minerals from Russia and Ukraine throw a wrench in the supply chain recovery.
“High prices of consumer essentials such as food and energy will take a toll on sentiment. Altogether, these factors will further slow economic growth in the coming quarters,” it said.

Moreover, the rise in fuel and metals prices will continue to weigh on supply-side cost pressures.

Fresh production delays and freight issues will limit output capacity. On the demand side, some countries may resort to subsidies to reduce the financial burden of higher prices. Any such move will only serve to keep demand for commodities artificially high, thereby aggravating global price pressures, the agency said.

https://www.financialexpress.com/economy/moodys-trims-its-2022-growth-estimate-for-india-to-9-1/2464506/