Moody’s Pegs India Growth at 7.5% for 2018, 2019

The Indian economy is largely resilient to external pressures and is expected to grow around 7.5% in 2018 and 2019, Moody's Investors Service said.

In its Global Macro Outlook for 2018-19, Moody’s said growth is supported by strong urban and rural demand and improved industrial activity, pointing to the strong PMI and the index of 8 core industries. “A normal monsoon together with the increase in the minimum support prices for kharif crops, should support rural demand,” the ratings agency said. “Thus, despite external headwinds from higher oil prices and tightening financing conditions, growth prospects for the remainder of the year remain in line with the economy’s potential.”

It said economic activity grew 7.7% in first quarter of 2018 and high frequency indicators suggest a similar outturn for second quarter. India will report its July-September quarter results on August 31.

Moody’s had cut India’s growth forecast for 2018 to 7.3% in May from 7.5%. The graphic presentation of the growth estimates in the latest report still shows India’s growth at 7.3% for 2018 but the commentary pegs growth at around 7.5%.

Moody’s said the run-up in energy prices over the last few months will raise headline inflation temporarily and expects the Reserve Bank of India to continue on a steady tightening path into 2019.
“Two concerns behind the tightening cycle are rising core inflation and vulnerability to tightening external financial conditions,” it said.

The Reserve Bank of India raised the benchmark policy rate by 25 basis points for the second successive increase. “Retail inflation in India has risen as per our expectations since mid-2017, but remains stable around 5%. But core inflation has moved up in recent month to 6.2%,” Moody’s report said.

Moody’s said though global growth remains strong, there are early indications it may have peaked.
“The near-term global outlook for most advanced economies is broadly resilient, in contrast to the weakening of some developing economies in the face of emerging headwinds from rising US trade protectionism, tightening external liquidity conditions and elevated oil prices,” it said.

Moody's sees G-20 growth at 3.3% in 2018 and 3.1% in 2019. The advanced economies are forecast to grow 2.3% in 2018 and 2% in 2019, while G-20 emerging markets will drive growth with 5.1% in 2018 and 2019.

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