Moody's Investors Service has downgraded India's growth forecast for calendar year 2022 from 9.5% to 9.1% and marginally pared growth hopes for 2023 from 5.5% to 5.4%, citing the global impact on growth due to the fallout from Russia's invasion of Ukraine.
The global rating firm, which had raised India's GDP growth number for 2022 from 7% to 9.5% less than a month ago, said it was now scaling down its global growth outlook and raising inflation projections in light of the spurt in commodities prices, supply shortages, business disruptions and the dented sentiment to geopolitical strife.
India was particularly vulnerable to high oil prices as it was a large importer of crude oil, although as a surplus grain producer, its agricultural exports could gain in the short term from the global high prices, Moody's said.
“High fuel and potentially fertiliser costs would weigh on government finances down the road, potentially limiting planned capital spending,” citing these as the reasons for the lower growth forecast by 0.4 percentage points. India stood to benefit on wheat exports, for instance, Moody's pointed out.
While the magnitude of damage to the global economy would depend on the duration and scope of the Russia-Ukraine conflict, Moody's said the recovery had been dented but not derailed yet. However, alternative downside scenarios envision a global economy tipping into recession, even as other risks such as new COVID-19 waves, monetary policy missteps, and social risks associated with high inflation, could dampen the growth outlook.
“We now expect the G-20 economies to expand 3.6% collectively in 2022, compared with 4.3% growth envisioned in our February outlook. Growth will further slow to 3% in 2023,” the rating firm said, adding that Russia was the only G-20 nation to see a contraction.
‘Russian economy will shrink’
“We forecast that Russia’s economy will shrink 7% this year and 3% in 2023, down from projected growth of 2.0% and 1.5%, respectively, before the invasion of Ukraine,” it noted.
In its global macroeconomic outlook released on February 24, the day Russia began military operations in Ukraine, Moody’s had said India was on its way to normalcy but was less sanguine about the global economy’s prospects.
“The first half of 2022 will be challenging. Elevated commodity prices, demand-supply imbalances, inflation pressures, volatile financial markets and geopolitical tensions will make for a challenging backdrop,” it had said.
At the time, it had flagged its ‘bear scenario’ was a more likely outcome due to the balance of risks tilting to the downside. As per that scenario, Moody’s had anticipated elevated inflation would accompany weakening growth, with sanctions on Russia resulting in substantial decline in energy supply, sending oil and gas prices surging.
