Moody's Cuts India's GDP Growth Forecast To 5.6% For 2019-20

Moody's said GDP slowdown is lasting longer than previously expected.

Moody's Cuts India's GDP Growth Forecast To 5.6% For 2019-20
Moody's Investors Service on Thursday lowered its economic growth forecast for India to 5.6 per cent in the current financial year, saying GDP slowdown in the country is lasting longer than previously expected. The cut in growth forecast comes a week after the credit ratings major changed its outlook on India's ratings to "negative" from "stable". India's economy expanded at 5 per cent in the first quarter of financial year, which marked the slowest pace of growth in more than six years.

Here are 10 things to know:

  1. "We have revised down our growth forecast for India. We now forecast slower real GDP growth of 5.6 per cent in 2019, from 7.4 per cent in 2018," Moody's said on Thursday.

  2. Moody's expects economic activity in the country to pick up to 6.6 per cent in 2020 and 6.7 per cent in 2021, but remain lower than in the recent past.

  3. The cut in GDP growth projection follows a series of downgrades and warnings by economists amid concerns of a prolonged slowdown. Many economists have lowered their growth projections for the economy due to weak consumption and thousands of estimated job losses.

  4. "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."

  5. The latest cut marks at least the third straight downward revision by Moody's in its growth projections for the Indian economy. 

  6. "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," Moody's said.

  7. The government has undertaken a number of measures to arrest the growth slowdown. In September, it announced a cut in the corporate tax rate to 22 per cent from 30 per cent. It also lowered the tax rate for new manufacturing companies to 15 per cent to attract new foreign direct investments.

  8. The government's other initiatives include bank recapitalization, the mergers of 10 public sector banks into four, support for the auto sector, plans for infrastructure spending, as well as tax benefits for startups.

  9. Moody's had in October lowered its growth forecast for India to 5.8 per cent from 6.2 per cent and said a weaker growth outlook will dampen the prospects for fiscal consolidation.

  10. In the same month, the International Monetary Fund (IMF) also lowered India's GDP growth forecast to 6.1 per cent in 2019 and 7 per cent in 2020. It however said the country still retains its rank as the world's fastest-growing major economy, tying with China.



Highlights

  • India slowdown lasting longer than previously expected, says Moody's
  • Consumption demand has cooled notably, the ratings agency adds
  • GDP growth came in at more than six-year low of 5% in June quarter
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