Strong domestic demand to sustain growth in near term: Moody’s Investor Service

economictimes.indiatimes.com:

Moody’s Investor Service, reaffirming its 6.7% growth forecast for the Indian economy for 2023.

“With exports remaining weak amid an unfavourable global economic backdrop, strong domestic demand will likely sustain growth in the near-term,” the research firm said Thursday, predicting the Indian economy to grow 6.1% in 2024 and 6.3% in the subsequent year.

India’s economy grew 7.8% in the April-June quarter; Moody’s expects growth momentum to have continued in subsequent quarters.

“High-frequency indicators show that the economy's strong Q2 momentum carried into Q3.

Robust goods and services tax collections, surging auto sales, rising consumer optimism and double-digit credit growth suggest urban consumption demand will likely remain resilient amid the ongoing festive season,” it said.

While it pointed to a nascent recovery in the rural economy, it was quick to note that a bounce back was contingent on monsoons.

“Rural demand, which has shown nascent signs of improvement, remains vulnerable to uneven monsoons that could lower crop yields and farm income,” it pointed out.

The World Meteorological Organization Wednesday said that El Nino conditions are expected to last till April 2024.

Moody’s also flagged uncertainties arising from the inflation trajectory and the lagged impact of the Reserve Bank of India’s 2.5 percentage point rate hike.

“Domestic demand dynamics beyond the festive season will depend on the trajectory of inflation and the lagged impact of the RBI’s monetary policy tightening,” the global research firm noted.

India’s inflation dipped to 5% in September after remaining above RBI’s upper target band of 6% for July and August, owing to vegetable price shock.

ET reported that prices are likely to