Moody's lowers India growth estimate for CY22 to 9.1% on Ukraine conflict

Last month, the agency revised India's economic growth estimates in CY2022 upwards to 9.5 per cent from 7 per cent on stronger than expected recovery.

Rating agency Moody’s on Thursday scaled down India’s economic growth forecast by 40 basis points to 9.1 per cent in CY2022 due to adverse effects of the Russia-Ukraine conflict on the global economy.
 

Last month, it had revised India’s economic growth estimates in CY2022 upwards to 9.5 per cent from 7 per cent on stronger-than-expected recovery after lockdowns in 2020 and the Delta wave in 2021. Moody’s, in a statement, said India is particularly vulnerable to high oil prices given that it is a large importer of crude oil. Because the country is a surplus producer of grain, agricultural exports will benefit in the short term from high prevailing prices.
 

High fuel and fertiliser costs would weigh on government finances down the road, potentially limiting planned capital spending. “For all of these reasons, we have lowered our 2022 growth forecasts for India by 0.4 percentage point,” it said.
 

“We now expect the economy to grow by 9.1 per cent this year, followed by 5.4 per cent in 2023. Our forecast revisions also factor in the somewhat stronger underlying momentum than we had not accounted for previously,” Moody’s added.
 

Russia’s invasion of Ukraine has significantly altered the global economic backdrop through three main channels. First, the spike in commodities prices driven by existing and expected supply shortages is creating risks of damagingly high input costs and consumer inflation over an extended period.
 

Second, financial and business disruption poses risks to the highly integrated global economy. Third, heightened security and geopolitical risks will exert economic costs and weigh on the economy by denting sentiment. “We have lowered our baseline growth forecasts to capture these shifts in the global economic environment,” it added.
 

Dip in growth, rise in inflation

In Brazil, Mexico, the euro area, Turkey, South Africa and India, energy prices make up more than 8-14 per cent of the Consumer Price Index basket. In most other G-20 economies, energy is around 6-8 per cent of the consumer’s consumption basket.  

Monetary policy tightening may advance

Even before Russia invaded Ukraine, financial conditions were tightening. New supply shocks are only adding to inflation fears, raising pressure on central banks to tighten the monetary policy.

War may negatively impact India: IMF

The global economic fallout of the war in Ukraine is expected to negatively impact India's economy, the IMF said on Thursday.  Gerry Rice, International Monetary Fund's Director of the Communications Department said the sharp rise in global oil prices represents an important trade shock with macro-economic implications. It will lead to higher inflation and current account deficit, he said. “But the impact on the current account could potentially be partially offset by favourable movements in prices of commodities that India exports, for example, wheat,” he said.
 

Rice said that the negative impact of the war in Ukraine on the US, the EU and Chinese economies could dampen external demand for India's exports, while supply chain disruptions could negatively impact India’s import volumes and prices.  (PTI)