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India to grow at 7.5% in 2016, 2017: Moody's

Forecasting Indian Economy To Grow 7.5 Per Cent In The Current And Next Year, Moody’s Investors Service Today Said The Expansion Is Primarily Driven By Rising Consumption And Sustained Improvement In Private Investment Was Needed To Maintain The Momentum. The Indian Economy Had Grown By 7.3 Per Cent In 2015-16, Moody’s Said Adding Private Investment Remains Weak.

PTI | Updated on: 19 May 2016, 01:23:56 PM

New Delhi:

Forecasting Indian economy to grow 7.5 per cent in the current and next year, Moody’s Investors Service today said the expansion is primarily driven by rising consumption and sustained improvement in private investment was needed to maintain the momentum. The Indian economy had grown by 7.3 per cent in 2015-16, Moody’s said adding private investment remains weak.

“India, as a net importer of commodities, has benefited from falling prices and growth will be driven by rising consumption. However, a sustained improvement in domestic private investment would be required for the growth momentum to be sustained,” Moody’s said in its Global Macro Outlook 2016-17.

It said growth will pick up slightly, climbing to 7.5 per cent in 2016 and 2017, from 7.3 per cent in 2015.

Modest exposure to trade in goods and a net-commodity importing status has to some extent shielded the Indian economy from external headwinds.

“Weak global growth has meant a 9 per cent year-over-year decline in total exports in real terms in 2015Q4, after declining by an average annual rate of 5.6 per cent in the first three quarters of 2015,” it said.

Also, investment spending fell in the last quarter of 2015, as did industrial production, and capital utilisation rates remain low.

Overall economic growth is supported by robust consumer spending, which makes up 55 per cent of aggregate demand in the economy.

“The prevailing low headline inflation is expected to remain so, given the current forecast of a good monsoon season, and should allow the Reserve Bank of India to sustain its current accommodative stance,” Moody’s said.

It expected the Indian economy to continue to grow close to an annual rate of 7.5 per cent in real terms in 2016 and 2017, largely driven by private consumption growth.

“Private spending will be supported by the implementation of the public sector salary increases, mandated by the 7th Pay Commission, and a rise in rural incomes, provided the forecast of a good monsoon is realised,” said.

Looking forward the impact of weaker commodity prices is likely to fade over time with the stabilization of commodity prices.

“Combined with the fact that external demand is likely to remain lackluster, a sustained improvement in domestic private investment would be required for the growth momentum to be sustained,” it said.

Moody’s said weak growth in emerging markets, driven by low commodity prices and waning export demand, will continue to act as a drag on the global economy this year.

“We continue to expect that emerging markets growth will stabilize and strengthen going into 2017, as the impact of the 2015 terms of trade shocks from lower commodity prices starts to fade,” it said.

The rating agency forecast G20 emerging markets growth at 4.2 per cent for 2016 and 4.8 per cent for 2017 compared with 4.4 per cent in 2015.

It maintained expectation of Chinese economy gradually slowing down to around 6.3 per cent in 2016 from 6.9 per cent in 2015, with significant fiscal and monetary policy support.

“Downside risks to China’s growth outlook persist, especially if policy support becomes less effective as leverage continues to rise. The knock-on effect on global growth would be significant,” it said.

For G20 advanced markets, Moody’s forecast growth of 1.7 per cent for 2016 compared with 1.9 per cent in 2015.

Despite the boost that lower oil prices provide to oil-importers, the net impact of the financial markets turmoil seems to have been a shock to confidence as first-quarter macroeconomic data showed weaknesses in a number of countries.

“As a result, we now expect slightly slower growth over the next two years in Canada, Italy, Japan, the UK and the US, although forecast revisions are generally small. We currently expect G20 advanced markets growth at 1.7 per cent for 2016 and 1.9 per cent for 2017, compared to 1.9 per cent in 2015,” it said.

Stating that financial markets volatility has subsided relative to the start of the year and capital flows to emerging markets have started to return, Moody’s said the risks that caused the volatility remain under the surface.

“Uncertainty remains surrounding the future path of US interest rates, downside risks to China’s growth outlook, the potential impact of the rise in corporate leverage globally, and resurfacing geopolitical and domestic political risks,” it said.

Moody’s said it expects oil prices to remain low over the next two years.

Despite the recent improvement in the price of oil, to some extent related to weakness in the value of the US dollar, persistent supply and demand gap globally remains, it said sticking to its earlier forecast of average oil price of around USD 33 per barrel in 2016 and USD 38 per barrel in 2017. 

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First Published : 19 May 2016, 01:22:00 PM

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