Moody's India growth forecast lowered to 7% on monsoon concerns

New Delhi: Rating agency Moody's Investors Service on Tuesday lowered India's growth forecast to 7% for 2015, from 7.5% projected earlier, citing monsoon concerns and cautioned that further risks to growth stems from slow pace

PTI [ Updated: August 18, 2015 15:32 IST ]

moody s india growth forecast lowered to 7 on monsoon concerns

New Delhi: Rating agency Moody's Investors Service on Tuesday lowered India's growth forecast to 7% for 2015, from 7.5% projected earlier, citing monsoon concerns and cautioned that further risks to growth stems from slow pace of reforms.

"We have revised our GDP growth forecast down to around 7%, in light of a drier-than-average monsoon although rainfall was not as low as feared at the start of the season," Moody's Investors Service said in its 'Global Macro Outlook for 2015-16'.

"One main risk to our forecast is that the pace of reforms slows significantly as consensus behind the need for reform weakens once the least controversial aspects of the government's plan have been implemented," Moody's said.

It said, as a net importer of commodities, India's growth outlook benefits from the fall in commodity prices over the past year. Also the country is "little affected" by demand from China and more generally slower global trade growth.

Moody's said economic activity will continue to strengthen on the back of a gradual implementation of reforms that foster domestic and foreign investment.

Consumption growth will continue to be supported by large income gains as inflation has fallen to relatively low levels by the country's past standards and favourable demographics.

"Barring a large shock to commodity prices or food inflation, we think that the central bank's inflation targets are achievable," it added.

"Maintaining inflation at lower levels than in the past will support real incomes and spending. As long as the central banks objective is credible, it will also foster investment by providing more visibility about future revenue growth and margins," Moody's said.

It added that growth in 2015-16 will also be supported by an accommodative fiscal policy stance and the budget focuses on sustained economic growth as a driver of narrower deficits.

As regards China, Moody's maintained its baseline GDP growth forecast of 6.8% for 2015 and 6.5% in 2016, before falling towards 6% by the end of the decade.

"The recent stock market correction is unlikely to have a significant impact on China's GDP growth. The depreciation of the renminbi so far will also not have any marked economic impact," it said.

Global economic growth, Moody's said, would be muted over the next two years. It projected G20 GDP growth at 2.7% this year, rising to around 3% in 2016, compared to 2.9% in 2014.

"The recovery in the US and, to a lesser extent, the euro area and Japan, will be offset by the ongoing slowdown in China, low or negative growth in Latin America and only a gradual Russian recovery from its recession this year," said Marie Diron, Senior Vice President, Credit Policy at Moody's Investors Service.

Moody's said it expects the Brent price to average $57 a barrel in 2016, only a little higher than the 2015 average of $55.