Moody’s: Indian economy to slow down to 7.3 percent next year

Moody’s Investors Service on Thursday predicted that the Indian economy will slow down to 7.3 percent in the year 2019. However, it said that this year i.e in 2018, the economy will grow at 7.4 percent.

In its report titled Global Macro Outlook 2019-20′, the US-based agency said that the economy of India grew at 7.9 percent in the first half (January-June) of 2018, which reflects post demonetisation base effect.

Quoting that the borrowing costs have already increased on higher interest rates, Moody’s said it expects the Reserve Bank will continue to steadily raise the benchmark rate through 2019, which will further dampen domestic demand.

“These factors will limit the pace of the Indian economy’s growth over the next few years, with real GDP growth of 7.3 percent in 2019 and 2020, from around 7.4 percent in 2018,” Moody’s said in a report. It further added that the greatest downside risk to India’s growth prospects stem from concerns about its financial sector.

Moody’s report further said, The impact of higher global oil prices compounded by sharp rupee depreciation raises the cost of households’ consumption basket and will weigh on households’ capacity for other expenditures. Borrowing costs have already risen because of tightening monetary policy.”

“In the short term while measures to stabilise the financial sector are put in place, credit growth is likely to slow,” it added. Moody’s report also asserted that the downside risks from a prolonged liquidity squeeze for non-bank financial institutions, which could lead to a sharper slowdown in their credit provision.

Moody’s report also noted that the global economic growth will slow in 2019 and 2020 to a little under 2.9 percent from an estimated 3.3 percent in 2018 and 2017.  The US-based agency further predicted that the trade and geopolitical frictions between the US and China would persist for some time. “This will weigh on the global trade growth and will reshape trade flows and supply chains,” it concluded.

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