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Moody’s keeps India GDP growth forecast at 5.6%

Growth could be hit as demand has cooled with slow employment growth impacting consumption, co expects 6.6% for ’20 and 6.7% in ’21.

ET Bureau|
Dec 14, 2019, 08.33 AM IST
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New Delhi: Moody’s Investors Service reiterated India’s gross domestic product growth forecast for 2019 at 5.6%, which it had lowered from 5.8% in October, on slow consumption demand.

The rating company expects economic growth at 6.6% in 2020 and 6.7% in 2021.

“We have lowered our 2019 GDP growth forecast for India to 5.6%, which is lower than 7.4% growth in 2018. India’s economic growth has decelerated since mid-2018, with real GDP growth slipping from nearly 8% to 5% in the second quarter of 2019,” the global rating company said in its auto sector update for Asia-Pacific in Q3 2019 on Friday.

India’s economy expanded 4.5% in the July-September quarter, the slowest pace in over six years, pulled down by manufacturing, which contracted 1% in gross value added against a 6.9% increase a year earlier. The economy grew 6.8% in FY19.

Stating that demand has cooled notably with slow employment growth weighing on consumption, Moody’s said the government’s fiscal measures including corporate tax rate cuts, bank recapitalisation, infrastructure spending plans and support for the auto sector do not directly address the widespread weakness in consumption demand, which has been the chief driver of the economy.

“In addition, Reserve Bank of India interest rate cuts are not being adequately transmitted to lending rates because of the credit squeeze caused by disruption in the non-bank financial sector,” it said.

The RBI’s Monetary Policy Committee had kept its key lending rate unchanged on December 5 and sharply lowered its GDP growth forecast to 5% from 6.1%, while maintaining an “accommodative” policy stance.


“Commercial vehicle sales have been hit by the liquidity squeeze in the financial sector and the economic slowdown, despite support from government stimulus measures to boost demand and vehicle purchases ahead of India’s migration to new emission standards,” Moody’s said.

Data from the Society of Indian Automobile Manufacturers showed passenger vehicle production rose 4.06% in November, but overall domestic auto sales declined over 12%.

Moody’s expects auto loan delinquencies to increase in the next few quarters as the economic slowdown will constrain demand for freight transportation and put pressure on freight rates.

“However, the slowing economic growth has yet to significantly impact the performance of underlying loans as the decline in commercial vehicle sales over the past quarters has helped ease the surplus capacity situation in the medium and heavy commercial vehicle segments,” it added.
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