Moody’s Cuts India’s GDP Growth Forecast For 2019 To 5.6%

On Thursday, Moody's Investors Service cut its forecast on India's economic growth forecast for the current year to 5.6 percent from the earlier estimated 5.8 percent, saying that the slowdown has lasted longer than earlier anticipated. It also said that government measures have not addressed the widespread weakness in consumption demand.

"We have revised down our growth forecast for India. We now forecast slower real GDP growth of 5.6 percent in 2019, from 7.4 percent in 2018," it said.

"India's economic slowdown is lasting longer than previously expected."

"India's economic growth has decelerated since mid-2018, with real GDP growth slipping from nearly 8 per cent to 5 per cent in the second quarter of 2019 and joblessness rising," it added.

"Investment activity was muted well before that, but the economy was buoyed by strong consumption demand. What is troubling about the current slowdown is that consumption demand has cooled notably," it said.

The central government has undertaken a number of measures in the recent past to arrest the growth slowdown, including a corporate tax rate cut, public sector bank mergers, bank recapitalisation, tax benefits for startups, etc.

"However, none of these measures directly address the widespread weakness in consumption demand, which has been the chief driver of the economy," it said.

Moody's also pointed out the aggressive rate cuts by the Reserve Bank of India and said that more rate cuts are likely.

"Benign domestic inflationary pressures, subdued oil prices and easing in other parts of the world will allow the central bank to continue to pursue an accommodative monetary policy stance. However, the transmission to lending rates continues to be hindered by the credit squeeze caused by disruption in the non-bank financial sector," it said.

"Slow employment growth is weighing on consumption. The interest rate cutting cycle is not adequately being transmitted, which is hampering investment as companies' borrowing costs remain elevated," it added.