Moody’s cuts India’s 2015 growth forecast to around 7%

The forecasts for 2015 and 2016 are still below the G20’s average growth rate before the 2008 financial crisis and Moody’s said it did not expect growth to return to pre-crisis levels within the next five years.

Moody’s maintained its forecast of around 7.5 per cent increase in gross domestic product (GDP) for 2016, but pointed to risks ahead that include delays to the government’s reform plans. “But, I do not find anything particularly surprising in taking a 50 bps reduction in their (Moody’s) growth forecast”, he added.

The company lowered its US expansion forecast for this year to reflect a slower-than-projected rebound in the second quarter, while leaving the G-20 growth forecast for 2015 unchanged at 2.7 per cent. “We have revised our GDP growth forecast down to around 7%, in light of a drier than average monsoon although rainfall was not as low as feared at the start of the season”, Moody’s said in a report.

“The recovery in the US and, to a lesser extent, the euro area and Japan, will be offset by the ongoing slowdown in China, low or negative growth in Latin America and only a gradual Russian recovery from its recession this year”, said the report’s author,

Marie Diron.

The global Monetary Fund predicts India’s economy will grow 7.5 percent in the 12 months through March 2016, compared with a government forecast of 8 percent to 8.5 percent for the same period. Also the country is “little affected” by demand from China and more generally slower global trade growth.

“Barring a large shock to commodity prices or food inflation, we think that the central bank’s inflation targets are achievable”. “Consumption growth will continue to be supported by large income gains as inflation has fallen to relatively low levels by the country’s past standards and favourable demographics”, it said. “The depreciation of the renminbi so far will also not have any marked economic impact”, it said. The composition of growth across regions is also broadly unchanged.

If the projection comes true, the growth would be lower than the 7.3% witnessed in 2014-15. “I tend to agree that the Reserve Bank of India (RBI) will probably be more inclined to cut interest rates going forward, because the inflation numbers surprised on the downside and when you look at some of the growth indicators, for example, industrial production a week or so ago surprised on the upside”, he added. Moody’s said the range and size of measures by the Chinese government to support growth have been greater than expected, underscoring the economy’s weakness. Although Athens has clinched a new €86bn (£60bn) bailout package, Moody’s has forecast a “sharp recession” in Greece, as “capital controls, heightened risk of exit from the euro area in June and July and now lack of visibility about the policy and economic environment put spending on hold”.

The main downward revisions to growth are for Brazil, Mexico, Indonesia and Korea.