Amidst the growing debate on the economic growth number for the October-December quarter (Q3) of fiscal year 2022-23 (FY23) , Moody’s Analytics expects India to regain momentum.

Data released on February 28 by the statistics office put Q3 growth at 4.4 per cent, as against 6.3 per cent in the July-September quarter (Q2) of FY 23, and 5.2 per cent in Q3 of FY 22. While the numbers suggest that growth is slowing down, the Government has maintained that the data is not comparable, besides recovery had not become shallower.

On Tuesday, in its ‘Emerging Markets Outlook’, Moody’s Analytics said: “Our take is that the slowdown late last year (Q4 of calendar 2022 and Q3 of FY23) will be temporary and even salutary, helping to wring some demand-side pressures out of the economy, without stopping it wholesale.”

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On the external front, better growth in the US and Europe’s incipient recovery will propel India at the mid-year mark. “The US and Europe are India’s largest trade partners and are important destinations for export of business services,” the report added.

Growth driver

It noted that India‘s domestic economy, rather than trade, is its primary engine, in contrast to most other emerging-Asia economies. With this in mind, it observed the latest quarter performance with caution. Growth slowed substantially on a year-ago basis, with private consumption lagging overall GDP for the first time since the Delta wave struck the economy in the second quarter of 2021.

Sectors such as manufacturing and agriculture that are linked to private consumption spending, either contracted or barely grew. The normally faster-growing construction, retail and wholesale trade sectors came in somewhat hotter, though both lagged gains from earlier this year. “While high interest rates have slowed the domestic economy and curbed imports, external imbalances have widened, putting pressure on the rupee and adding to inflation,” the report said.

On the Asia-Pacific (APAC), the report said emerging Asia will perform strongly, with South-East Asia and India being standouts. For Europe, Middle East, and Africa (EMEA), it highlighted that emerging Europe will convincingly leave recession behind, and the Middle East will perform strongly, but major African economies will have another disappointing year. However, Latin America’s growth prospects are the weakest among EMs given its tight monetary policy, a difficult business climate, and fever-pitch politics. “The debt crisis in smaller emerging economies lingers and is a source of risk,” it cautioned.

Meanwhile, the report pointed out that a rebounding China and more-resilient US economy will drive recovery in Emerging Markets in 2023, but differences across regions will grow more pronounced,