Moody’s raises India’s GDP forecast sharply

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MUMBAI- Moody’s Investor Service sharply raised its gross domestic product (GDP) forecast for India on Monday, following the strong momentum seen in the South Asian economy in recent quarters, which the ratings agency expects will continue into 2024.

“India’s economy has performed well and stronger-than-expected data in 2023 has caused us to raise our 2024 growth estimate to 6.8 percent from 6.1 percent ,” Moody’s said.

“India is likely to remain the fastest growing among G-20 economies over our forecast horizon.”

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India’s economy grew at its fastest pace in one-and-half years in the final three months of 2023, led by strong manufacturing and construction activity, posting growth of 8.4 percent , which was faster than the 6.6 percent estimated by economists.

High-frequency indicators show the economy’s strong third and fourth quarter momentum carried into the first quarter of the current calendar year, Moody’s said.

“Robust goods and services tax collections, rising auto sales, consumer optimism and double-digit credit growth suggest urban consumption demand remains resilient,” it added.

“On the supply side, expanding manufacturing and services PMIs add to evidence of solid economic momentum.”

The ratings agency said it expects policy continuity after the general election due by May and a continued focus on infrastructure development.

While private industrial capital spending has been slow to pick up, it is expected to grow with ongoing supply chain diversification benefits and investors’ response to the government’s scheme to boost key manufacturing industries, it said.

Rising capacity utilization, robust credit growth and upbeat business sentiment point to an improving outlook for private investment, it added.

Headline inflation in January eased to 5.1 percent from the previous month’s 5.7 percent but remains well-above the central bank’s 4 percent target.

“Given the solid growth dynamics and inflation above the 4.0 percent target, we do not expect policy easing any time soon,” Moody’s said.

India has consistently beat market expectations and is ranked as one of the fastest-growing economies in the world, with China struggling to recover after the pandemic and the euro zone narrowly escaping a recession.

India revised its growth estimate for the current fiscal year to March 31 to 7.6 percent from 7.3 percent.

Such a strong showing in the last major economic data release before elections due by May could bolster Prime Minister Narendra Modi’s chances after he made high economic growth one of his main platforms at rallies across the country.

Modi has sharply raised government spending on infrastructure and offered incentives to boost manufacturing of phones, electronics, drones and semiconductors to help India compete with likes of Vietnam and Thailand.

The manufacturing sector, which for the past decade has accounted for 17 percent of Asia’s third-largest economy, expanded 11.6 percent year-on-year in the December quarter, while investment growth was above 10 percent for the second consecutive quarter, and the construction sector grew by more than 9 percent.

Private consumption, accounting for 60 percent of gross domestic product (GDP), recovered slightly in the quarter, with a 3.5 percent year-on-year rise, compared with 2.4 percent in the previous three months.

Government spending contracted 3.2 percent year-on-year, compared with 1.4 percent growth in the previous quarter. -Reuters

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