Moody’s slashes India’s economic growth forecast to 5.6% for 2019

Moody’s Investors Service on Thursday slashed India’s economic growth forecast to 5.6 per cent for 2019, saying government measures do not address 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 per cent in 2019, from 7.4 per cent in 2018,” it said. “India’s economic slowdown is lasting longer than previously expected.”

Moody’s had on October 10 slashed India’s economic growth forecast for 2019-20 fiscal to 5.8 per cent from an earlier estimate of 6.2 per cent.

“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. 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 consumer demand has cooled notably,” it said.

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Last week, Moody’s had changed the outlook on the Government of India”s sovereign ratings to negative from stable and affirmed the Baa2 foreign currency and local currency long-term issuer ratings.

Moody’s had also affirmed India”s Baa2 local-currency senior unsecured rating and its P-2 other short-term local-currency rating.

India’s credit rating at Baa2 is the second-lowest investment rating and Moody’s has warned that India could be heading for a debt trap and recessionary phase.

In its Global Macro Outlook 2020-21, Moody’s on Thursday said economic activity in India will pick up in 2020 and 2021 to 6.6 per cent and 6.7 per cent, respectively, but the pace to remain lower than in the recent past.

Read Also| Moody’s cuts India outlook from ‘stable’ to ‘negative’

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.

The tax rate reductions bring India in line with rates in other Asian countries.

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.

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

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