Moody’s Cuts India’s Economic Growth Forecast to 5.6 Per cent

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New Delhi: A week after changing the outlook on the Indian Government’s ratings to negative from stable, Moody’s Investors Service on Thursday cut the country’s economic growth forecast for current year to 5.6% from 5.8% estimated earlier.

In its report, the rating agency cautioned that the India’s GDP slowdown is lasting longer than previously expected.

“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.

It expects economic activity to pick up in 2020 and 2021 to 6.6% and 6.7% respectively, but the pace to remain lower than in the recent past.

Last week, Moody’s Investors Service cut India’s ratings outlook to “negative” from “stable”, citing increasing risks that Asia’s third largest economy will grow at a slower pace than in the past.

Earlier on November 7, Moody’s changed the outlook on the Government of India’s ratings to negative from stable and affirmed the Baa2 foreign-currency and local-currency long-term issuer ratings.

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

Moody’s decision to change the outlook to negative reflects increasing risks that economic growth will remain materially lower than in the past, partly reflecting lower government and policy effectiveness at addressing long-standing economic and institutional weaknesses than Moody’s had previously estimated, leading to a gradual rise in the debt burden from already high levels.

While government measures to support the economy should help to reduce the depth and duration of India’s growth slowdown, prolonged financial stress among rural households, weak job creation, and, more recently, a credit crunch among non-bank financial institutions (NBFIs), have increased the probability of a more entrenched slowdown, it said.

Moreover, the prospects of further reforms that would support business investment and growth at high levels, and significantly broaden the narrow tax base, have diminished.

If nominal GDP growth does not return to high rates, Moody’s expects that the government will face very significant constraints in narrowing the general government budget deficit and preventing a rise in the debt burden.

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