Goldman Sachs sees India’s economic growth dropping to 5.9% next year, all thanks to the waning effect of the post-Covid reopening boost and higher borrowing costs that lowered domestic demand. The financial services company expected a 6.9% growth in 2022.
“Growth will likely be a tale of two halves, with a slower first half as the reopening boost fades, and monetary tightening weighs on domestic demand. In the second half, growth is likely to re-accelerate as global growth recovers, drag from net exports diminishes, and investment cycle picks up”. Santanu Sengupta, India economist at Goldman Sachs, said in a note on Sunday.
Last week, the Reserve Bank of India (RBI) estimated the domestic growth rate at 7% for 2022-23.
According to Santanu Sengupta, the government will continue to prioritize capital spending. He also sees signs of nascent investment recovery continuing and believes that favorable conditions would help the economy improve in the second half.
According to Goldman Sachs, core goods inflation has likely peaked and government intervention would likely control food prices, causing headline inflation to decline to 6.1% in 2023 from 6.8% in 2022.
“But upside risks to services inflation are likely to keep core inflation sticky around 6% year-on-year,” Sengupta added.
According to Goldman, RBI is likely to hike the repo rate by 50 basis points (bps) in December 2022 and again by 35 bps in February, summing the repo rate at 6.75%. The forecast surpasses the market consensus of 6.50%.
Regarding India’s external position, Santanu Sengupta believes that things have improved and that the dollar is likely to be close to its top. He predicts sluggish exports will keep the current account deficit high but adds that growth capital may still be drawn to India.
In comparison to the current USD/INR of 81.88, Santanu Sengupta projects the currency pair to reach 84, 83, and 82 over the next 3, 6, and 12 months, respectively.
What Moody’s & World Bank Have To Say?
Moody’s trimmed growth forecast for 2023 to 4.8% from the 5.2% estimated earlier. Following the drop, the agency sees India’s economic growth advance to 6.4% in 2024.
The World Bank in October slashed its 2022-23 (FY23) real gross domestic product (GDP) growth forecast for India to 6.5%, from 7.5% estimated earlier. It flagged that spillovers from Russia’s invasion of Ukraine and global monetary tightening can hamper the economic outlook.