New Delhi: The Indian economy will expand 7.4% in 2018, but the growth rate will slow down to 7.3% in the next year as domestic demand tapers on higher borrowing cost due to rising interest rates, Moody’s Investors Service said on Thursday.
In its report titled ‘Global Macro Outlook 2019-20’, Moody’s said the economy grew 7.9% in the first half (January-June) of 2018, reflecting the base effect post demonetisation.
Stating that borrowing costs had already increased on higher interest rates, Moody’s said it expected the Reserve Bank of India to raise the benchmark rate through 2019, further affecting domestic demand. “These factors will limit the pace of the Indian economy’s growth over the next few years, with real GDP growth of 7.3% in 2019 and 2020, from around 7.4% in 2018.”
The greatest downside risk to India’s growth prospects stemmed from concerns about its financial sector, it added.
“The impact of higher global oil prices compounded by sharp rupee depreciation raises the cost of households’ consumption basket, and will weigh on households’ capacity for other expenditures. Borrowing costs have already risen because of tightening monetary policy.
Downside risks from a prolonged liquidity squeeze for non-banking financial institutions, which could lead to a sharper slowdown in their credit provision, remain.”
Moody’s said global economic growth will slow in 2019 and 2020 to a little under 2.9% from an estimated 3.3% in 2018 and 2017.
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