Moody's cuts India's projected growth rate for 2018

Moody's Investors Service, a credit rating firm on Wednesday estimated a 7.3 per cent growth in Indian Gross Domestic Product (GDP) for the year 2018, thereby cutting it down from a previously projected 7.5 per cent.

In its May update of the Global Macro Outlook: 2018-19, Moody's cited higher oil prices and tighter financial conditions as the primary barrier to the growth rate.

"The Indian economy is in cyclical recovery led by both investment and consumption. However, higher oil prices and tighter financial conditions will weigh on the pace of acceleration. We expect GDP growth of about 7.3% in 2018, down from our previous forecast of 7.5%. Our growth expectation for 2019 remains unchanged at 7.5%," the research claimed.

It also highlighted an acceleration in rural consumption, higher minimum support prices and a normal monsoon to stabilize growth on the domestic front.

"The private investment cycle will continue to make a gradual recovery, as twin balance-sheet issues - impaired assets at banks and corporates - slowly get addressed through deleveraging and the application of the Insolvency and Bankruptcy Code," it added.

The research also indicated that the Goods and Services Tax (GST) may hamper the growth rate progress for a few quarters, however saying that the drawbacks will gradually moderate.

"Ongoing transition to the new Goods and Service Tax regime could also weigh on growth somewhat over the next few quarters, which poses some downside risk to our forecast. However, we expect these issues to moderate over the course of the year."

Talking about growth rates in 2018, Madhavi Bokil, Moody's VP Senior Credit Officer said market turbulence in emerging market counties poses the risk of a negative effect on several countries, while also highlighting the escalating trade tensions between the US and China as being another looming threat.

"Overall, we expect 2018 to be a year of robust global growth, similar to 2017. The ongoing financial market turbulence in emerging market countries poses risks of a broader negative spillover effect on growth for a range of countries beyond Argentina and Turkey, while there is a risk that high oil prices will weigh on purchasing power and present an upside risk to inflation. A re-escalation of trade tensions between the US and China is another risk factor to growth," he said.

Moody's forecasted a 3.3 percent and 3.2 percent growth for G-20 countries in 2018 and 2019 respectively while claiming that the growth differential between emerging and advanced economies were set to broaden, with the advanced economies growing 2.3% in 2018 and 2.0% in 2019.

It also predicted a deceleration in China's growth rate, estimating a 6.6 percent growth in 2018, down from 6.9 in 2017.