Five agencies cut India’s GDP growth forecast even as RBI retains forecast at 7.2%
- Rising fears of global recession have forced global financial institutions to cut growth forecasts of emerging markets like India.
- Today as RBI hikes interest rates by 50 basis points to tame inflation, Das highlighted that inflation remains a key concern and is a threat to the global economy.
- However, it retained a GDP target of 7.2% for the current financial year, which is ‘perplexing’ say analysts.
AdvertisementWhile RBI governor Shaktikanta Das sounded cautious about multi-year global inflation, he retained India’s GDP growth forecast in spite of five multilateral and rating agencies cutting their predictions in the last few months.
Rising fears of global recession have forced them to cut growth forecasts on emerging markets like India.
Today as RBI hikes interest rates by 50 basis points to tame inflation, Das highlighted that inflation remains a key concern and is a threat to the global economy.
However, it retained a GDP target of 7.2% for the current financial year, which is ‘perplexing’ say analysts. The fact that India’s retail inflation has remained above the tolerance level of 7% for the last three months throws a dark light on the economic growth prospects.
“This means that even after total rate hikes of 180 bps (including Apr '22), RBI has kept FY23 real GDP growth forecast unchanged since Apr'22, which is perplexing. How will higher interest rates tame inflation without hurting growth?” said Nikhil Gupta, chief economist at Motilal Oswal Group.
A few others also believe that global risks will weigh heavily on India’s growth prospects.
“The RBI mentioned that the domestic economic activity is showing signs of broadening with improving credit growth, pick-up in investment activity and rising capacity utilization. However, risks like geopolitical concerns and global financial market volatility and tightening financial conditions will weigh heavily on the outlook,” said Sampath Reddy, CIO at Bajaj Allianz Life Insurance.
|GDP forecast cut FY23
|International Monetary Fund (IMF)
|Asian Development Bank
Darkened outlook, IMF warns of a global recession
The IMF has warned of a possible global recession and said that the outlook significantly ‘darkened’ since April, last week. These changes will have a domino effect on emerging markets like India too.
“While near-term growth momentum seems to be robust, we see rising medium-term growth headwinds from higher inflation, monetary policy tightening, dormant private capex growth and, most importantly, the global growth slowdown,” said Nomura, which predicts that India will grow at 4.7%.
While ADB, Crisil, FICCI and more have cut their growth forecasts for India, their growth rates are in line with RBI’s prediction that India will grow a tad above 7%.
AdvertisementMultiple black swan incidents, global food inflation and aggressive monetary policy tightening are hindering the overall growth momentum. High commodity prices, elevated inflation along with rising interest rates have impacted consumptions and economic activity.
Several shocks have hit a world economy already weakened by the pandemic. Heightened inflation worldwide especially in the US and major European economies, slowdown in China due to Covid-19 outbreaks and further negative spillovers from the war in Ukraine, stated IMF.
SEE ALSO: Globalized inflation is a threat to global economy itself, says RBI guv Das
Shakti’s Gati on interest rate hike to continue
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