Moody's cuts India's GDP growth forecast to 5.6 per cent for 2019

It expected economic activity to pick up in 2020 and 2021 to 6.6 per cent and 6.7 per cent, respectively, but the pace to remain lower than in the recent past.
Moody's (File Photo | Reuters)
Moody's (File Photo | Reuters)

NEW DELHI: Moody’s Investors Service has once again cut India’s GDP forecast for FY 2019-20. 

On Thursday, the rating agency estimated the economic growth to settle at 5.6 per cent, stating that the government’s measures may not address the widespread weakness in consumption demand. Just last month, the global ratings agency had lowered GDP estimates from 6.2 per cent to 5.8 per cent.

“We have revised down our growth forecast for India. We now forecast slower real GDP growth of 5.6 per cent in 2019, from 7.4 per cent in 2018,” Moody’s said. Last week, it also downgraded India’s outlook to ‘negative’ from ‘stable’.

In its Global Macro Outlook 2020-21, Moody’s on Thursday said economic activity in India will pick up in 2020 and 2021 to 6.6 per cent and 6.7 per cent respectively, but the pace will remain lower than in the recent past.

Earlier, it had attributed the deceleration to an investment-led slowdown that has broadened into consumption, driven by financial stress among rural households and weak job creation.

“India’s economic growth has decelerated since mid-2018, with real GDP growth slipping from nearly 8 per cent to 5 per cent in the second quarter of 2019 and joblessness rising. Investment activity was muted well before that, but the economy was buoyed by strong consumption demand. What is troubling about the current slowdown is that consumption demand has cooled notably,” the agency said.

On its part, the government has been taking measures to arrest the slowdown. In September, the corporate tax rate was reduced to 22 per cent from 30 per cent, besides lowering rates for new manufacturers to 15 per cent.

Other measures included bank recapitalisation, mergers of 10 state-run banks into four, and support for the auto and real estate sectors.

“However, none of these measures directly address the widespread weakness in consumption demand, which has been the chief driver of the economy,” Moody’s said.

As for rate cuts, the RBI is likely to continue reducing policy rates, given the benign domestic inflationary pressures and subdued oil prices, among other reasons.

But, transmission to lending rates continues to be hindered by credit squeeze caused by disruption in the non-bank financial sector, Moody’s noted.

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