Moody’s Investors Service in its Global Macro Outlook for 2018-19 has forecasted that India’s gross domestic product (GDP) growth is likely to be around at 7.5% in 2018 and 2019 as it is largely resilient to external pressures like those from higher oil prices. It said the run-up in energy prices over the last few months will raise headline inflation temporarily but the growth story remains intact as it is supported by strong urban and rural demand and improved industrial activity.
The report stated that robust activity is shown in the industrial sector, a normal monsoon together with the increase in the minimum support prices for Kharif crops should support rural demand. 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.
Moody’s said the Reserve Bank of India (RBI) in July raised the benchmark repo rate by 25 basis points for the second time in two months to 6.5 per cent. It added that two concerns behind the tightening cycle are rising core inflation and vulnerability to tightening external financial conditions. The impact on food inflation from increased procurement prices to farmers will be mitigated somewhat by the expected rise in farm output because of a good harvest. Moody’s expect the RBI to continue on a steady tightening path into 2019.
For G-20 economies, the rating agency projected growth at 3.3% in 2018 and 3.1% in 2019. It said the advanced economies will grow 2.3% in 2018 and 2% in 2019, while G-20 emerging markets will remain the growth drivers at 5.1% in both 2018 and 2019. It also said growth prospects for many of the G-20 economies remain solid, but there are indications that the synchronous acceleration of growth heading into 2018 is now giving way to diverging trends.
