FY20 GDP growth: Moody’s cuts India forecast to 5.8 per cent

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New Delhi | Published: October 11, 2019 4:03:14 AM

Moody’s Investors Service on Thursday cut its forecast for India’s FY20 GDP growth by 40 bps to 5.8%, in what reflected a continuing trend of such downward revisions by prominent domestic and foreign agencies.

The latest estimate by Moody’s is the lowest FY20 GDP growth forecast for India by a leading agency.The latest estimate by Moody’s is the lowest FY20 GDP growth forecast for India by a leading agency.

Moody’s Investors Service on Thursday cut its forecast for India’s FY20 GDP growth by 40 bps to 5.8%, in what reflected a continuing trend of such downward revisions by prominent domestic and foreign agencies.

In its latest bimonthly monetary policy statement last Friday, the Reserve Bank of India cut its growth projection for the domestic economy by a sharp 80 bps to 6.1%, citing that the slump in real GDP growth to 5% in the first quarter of FY20 has been followed by “generally weaker high frequency indicators for the second quarter”.

The latest estimate by Moody’s is the lowest FY20 GDP growth forecast for India by a leading agency. “The drivers of the deceleration are multiple, mainly domestic and in part long-lasting,” Moody’s wrote.

IMF is expected to release their revised growth forecasts for the world and countries including India next week. The current IMF projection for India is 7% and that of World Bank, last reviewed in June, is 7.5%.

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

The rating agency expected India’s GDP growth to pick up to 6.6% in FY21 and to around 7% over the medium term.

“Although we expect a moderate pick-up in real GDP growth and inflation in the next two years, we have revised down our projections for both. Compared with two years ago, the probability of sustained real GDP growth at or above 8% has significantly diminished,” it wrote.

Moody’s expected headline consumer price inflation (CPI) to pick up from its recent lows to about 3.7% y-o-y by the end of March 2020 and 4.5% by the end of March 2021, due to a gradual rise in food prices and RBI policy that remains “relatively accommodative”.

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