India to clock 7.7% growth in April-June quarter: Moody’s

India is expected to register 7.7 per cent growth during the first three months (April-June) of the current fiscal, Moody’s Global Outlook: 2018-19 (August 2018 Update) report said on Thursday.

Interestingly, the agency, in the graphics mentioned 7.3 per cent growth rate for the current fiscal (technically 2018 for the agency and 2018-19 according to Indian standards) and 7.5 for 2019 (fiscal year 2019-20).

However, the text says, “We expect the Indian economy to grow around 7.5 per cent in 2018 and 2019,”

The agency had in May cut India’s 2018 growth forecast to 7.3 per cent from the previous estimate of 7.5 per cent, saying the economy is in cyclical recovery but higher oil prices and tighter financial conditions will weigh on the pace of acceleration.

The reports said after high growth in the first quarter, “High frequency indicators suggest a similar outturn for the second quarter. Growth is supported by strong urban and rural demand and improved industrial activity.”

Industrial growth

It also mentioned that the Purchasing Manager Index (PMI) and the index of 8 core industries show robust activity in the industrial sector. A normal monsoon together with the increase in the minimum support prices for Kharif crops, should support rural demand.

“Thus, despite external headwinds from higher oil prices and tightening financing conditions, growth prospects for the remainder of the year will remain in line with the economy’s potential,” it said.

Rise in inflation

Talking about inflation, the rating agency mentioned that the run up in energy prices over the past few months will raise headline inflation temporarily. The impact on food inflation from increased procurement prices to farmers, will be mitigated somewhat by the expected rise in farm output because of a good harvest.

“Most importantly, upside to inflation comes from strengthening demand, which is reflected in rising core inflation. We, therefore, expect the RBI to continue on a steady tightening path into 2019,” it said.

The report has come at a time, when the Monetary Policy Committee, led by the RBI Governor, raised the policy rates twice successively. Concerns behind the tightening cycle are rising core inflation and vulnerability to tightening external financial conditions.

The report said the retail inflation has risen as per “our expectations since mid-2017, but remains stable around 5 per cent. But core inflation has moved up in recent month to 6.2 per cent.” There are a number of factors influencing the headline inflation rate in both directions, most of which are transitory.

Growth in G-20

“Growth prospects for many of the G-20 economies remain solid, but there are indications that the synchronous acceleration of growth heading into 2018 is now giving way to diverging trends.

The near-term global outlook for most advanced economies is broadly resilient, in contrast to the weakening of some developing economies in the face of emerging headwinds from rising US trade protectionism, tightening external liquidity conditions and elevated oil prices,” it said.

Moody’s put G-20 growth at 3.3 per cent in 2018 and 3.1 per cent in 2019.

The advanced economies will grow 2.3 per cent in 2018 and 2 per cent in 2019, while G-20 emerging markets will remain the growth drivers at 5.1 per cent in both 2018 and 2019.

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