Moody's raises India's GDP growth forecast to 5.5% for 2023

Moody's Investors Service has raised India's GDP growth estimate from 4.8% to 5.5% for 2023, aided by the sharp increase in capital expenditure for the upcoming fiscal.

In her Budget 2023 speech, Finance Minister Nirmala Sitharaman had announced a capital expenditure target of ₹10 lakh crore. "Capital investment outlay is being increased steeply for the third year in a row by 33% to ₹10 lakh crore, which would be 3.3% of GDP," the FM said.

Moody's economic growth projection comes a day after India reported Q3 FY23 GDP numbers. The Indian economy grew 4.4% in the quarter ended December 31, 2023, dragged down by slowing exports and tepid consumer demand.

"Economic momentum in a number of large emerging market countries, including India, Brazil (Ba2 stable), Mexico and Turkiye, has proved more resilient to last year's tightening in the global and domestic financial environment than we had anticipated," Moody's said.

An eventual let up in monetary policy tightening in the U.S. will help stabilise, if not improve, capital flows to emerging market countries, it added.

However, until inflation in advanced economies is firmly in check, emerging markets will remain vulnerable to bouts of heightened financial market volatility, said the ratings agency.

The Reserve Bank of India's monetary policy committee hiked the repo rate by 25 basis points (bps) to 6.5% in February while withdrawing the "accommodative stance" to tame rising inflation in the country.

Moody's said it forecasts G-20 global economic growth will downshift to 2% in 2023 from 2.7% in 2022, and then to improve to 2.4% in 2024. "This year started on a seemingly optimistic note for the global economy following positive surprises on several fronts, including the lifting of COVID-related restrictions in China, unseasonably warm weather that has helped Europe cope with the energy crisis far better than had been expected, and improved financial conditions. Still, we expect global growth to continue to slow in 2023, with increasing drag from cumulative monetary policy tightening on economic activity and employment in most major economies," the ratings agency said.

"Our expectation that inflation will continue to fall through next year across most G-20 economies is contingent on a moderation in demand facilitated by central bank actions. In advanced economies where labor markets are incredibly tight, it will be difficult to bring down and hold inflation to central bank targets of 2% without a meaningful pullback in aggregate demand from consumers and businesses. Therefore, we envision inflation across advanced economies remaining above central bank targets for the better part of 2023 and 2024. The picture varies quite a bit across emerging market countries," it added.

In a separate release, Moody's said the under-utilisation of women in the workforce causes an economic loss at the individual and macroeconomic levels. "Closing the gender gap in labour force participation and the gender gap in management in OECD countries can raise global economic activity by approximately 7%, or about $7 trillion in today's dollars. Closing the gaps in large emerging economies, including India, would raise that potential further," it said.