Economy

Moody’s cuts India’s 2019 GDP growth forecast to 5.6% citing prolonged slowdown

Updated : November 15, 2019 08:56 AM IST

Moody’s lowers India’s GDP growth forecast to 5.6 percent in 2019, from 7.4 percent in 2018.

The rating agency expects economic activity to pick up in 2020 and 2021 to 6.6 percent and 6.7 percent.

Moody’s cuts India’s 2019 GDP growth forecast to 5.6% citing prolonged slowdown

Rating agency Moody’s lowered India’s gross domestic product (GDP) growth forecast to 5.6 percent in 2019, from 7.4 percent in 2018 citing the ongoing slowdown in investment activity and cooling consumption demand.

Moody’s Investor Services expects Indian economic activity to pick up in 2020 and 2021 to 6.6 percent and 6.7 percent, respectively, but the pace to remain lower than in the recent past.

According to the agency, India’s economic growth has decelerated since mid-2018, with real GDP growth slipping from nearly 8 percent to 5 percent 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," Moody’s said in a report.

Further, the rating agency believes that the recent government measures such as reduction in corporate tax, bank recapitalisation, merger of state-run lenders, infrastructure spending plans among others have failed to address the widespread weakness in consumption demand, which has been the chief driver of the economy.

Moreover, Moody’s also raised concerns over transmission of recent interest rate cuts by the Reserve Bank of India (RBI) which seems to hamper private investment as borrowing costs for corporates remain elevated.

Moody’s expects the RBI to go ahead with more rate cuts this year.

"Benign domestic inflationary pressures, subdued oil prices and easing in other parts of the world will allow the central bank to continue to pursue an accommodative monetary policy stance," Moody’s said.

However, the transmission to lending rates continues to be hindered by the credit squeeze caused by disruption in the non-bank financial sector, it added.

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