AfDB cuts India’s growth forecast amid gloomy Asia

BENGALURU/NEW DELHI: The Asian Development Bank on Wednesday lowered its growth forecast for India for 2022-23 to 7% from 7.2% estimated in July, given higher than expected inflation and a monetary tightening. He also lowered India’s growth estimate for 2023-2024 to 7.2% from 7.8%.

He said high oil and commodity prices and high inflation will likely require continued tightening of monetary policy to ensure inflation expectations do not take root, “which would likely hamper economic growth in the short term. term”.

The Manila-based multilateral funding agency forecasts India’s inflation of 6.7% for FY23 and 5.8% for next year. He pointed out that demand pressures resulting from stronger economic activity are alleviated by alleviating supply bottlenecks.

“GDP growth is revised down from the ADO 2022 forecast to 7.0% for FY2022 and 7.2% for FY2023 as pricing pressures are expected to impact negative on domestic consumption, and sluggish global demand and high oil prices are likely to be a drag on net exports,” ADB said in the 2022 Asia Development Outlook Update.

He said inflation proved more persistent than expected and led to a sharp tightening of monetary policy. “Inflation projections are revised upwards over the forecast horizon. Due to the less than favorable global environment, the current account deficit forecast for both fiscal years is also raised,” he added.

Retail price inflation in India has hit a record high of 7%, remaining above the Reserve Bank of India’s 6% upper tolerance limit for eight consecutive months now, mainly due to rising food prices and pressures from rising world oil and commodity prices.

“These developments indicate that while rising global oil and commodity prices and supply constraints following the Russian invasion of Ukraine fueled inflation, domestic factors, such as heat waves and heavy rains, have a major impact on inflation,” he said.

The report highlights that slowing global growth and high oil prices will hurt India’s export prospects in 2022-23. He added that imports are expected to grow faster due to rising domestic demand and remittances could fall as global income weakens, despite the depreciation of the rupee.

“Weaker-than-expected global demand over the next two years will also have a negative impact on exports and growth, despite the structural reforms undertaken by the government,” he said.

The Reserve Bank of India’s rate-setting panel raised the repo rate by 50 basis points for the third consecutive time in August, bringing the key rate back to pre-pandemic levels of 5.4%.

“Given that economic activity remains below pre-pandemic trend levels and that inflation is largely driven by supply-side factors, the hike was primarily aimed at anchoring inflation expectations and reducing inflation expectations. capital outflows following US monetary tightening,” the outlook report said.

He estimated that India’s current account deficit would widen to 3.8% of GDP in 2022-23 from 1.2% of GDP last year and narrow to 2.1% in 2023-24.

The report notes that private consumption will be affected by higher inflation which will erode consumers’ purchasing power, even if consumer confidence continues to improve. He also said persistent core inflation will negatively impact spending over the next two years if wages do not adjust. “Subsidized fertilizer and gas, the free food program and excise duty cuts will help offset some of the effects of high inflation on consumers, but the packaged food tax will likely be a burden on consumers. consumers already facing rising inflation,” the report said.

India’s economy grew 13.5% year-on-year in the first quarter of FY2022, reflecting strong services growth that mirrors the pent-up demand released for contact-intensive service sectors as the country returns back to normal after COVID-19.

The multilateral agency also lowered its growth forecast for South Asia to 6.5% for 2022 from 7.0% previously estimated and to 6.5% from 7.4% for 2023, as headwinds from global economy continue to reduce demand and cause supply disruptions. “The outlook reflects the growth pattern in India, which accounts for 80% of the sub-regional economy,” the report said.

Catch all the trade news, market news, breaking news and latest updates on Live Mint. Download the Mint News app to get daily market updates.

More less

To subscribe to Mint Bulletins

* Enter a valid email

* Thank you for subscribing to our newsletter.

Post your comment

About Mallory Brown

Check Also

The threat of a US railroad strike begins to rattle commodity markets

(Bloomberg) – A potentially catastrophic strike by railroad workers across the United States is beginning …