New Delhi, May 11: As high oil prices and geo-political tensions weigh on the global growth, Morgan Stanley has trimmed India’s GDP projection for financial year 2022-23 to 7.6% from 7.9% estimated earlier.
The growth for FY24 has also been cut from 7% to 6.7%. “Even as we expect the cyclical recovery trend to continue, we expect it to be softer than we previously projected. Building in higher oil prices and slower global growth, we trim our GDP growth forecasts to 7.6% for F2023 (from 7.9%) and to 6.7% for F2024 (from 7%),” Morgan Stanley said in its India Economics Mid-Year Outlook.
Morgan Stanley expects support from the government’s supply-side response and the reopening vibrancy to help counter the downside. “We expect reopening vibrancy to help the informal sector, in turn supporting consumption growth, which has been a laggard.
The government’s policy reforms, plus expansion of public infrastructure spending alongside an increase in capacity utilization levels, should help private capex to recover in 6-9 months,” it said.
The investment banking giant said it expects macro stability indicators to worsen and sees both inflation and the current account deficit deteriorating. “We expect broad-based price pressures, which will keep CPI inflation above the 6% mark through October 2022, with average CPI expected to be 6.5% for F2023. Similarly, reflecting the commodity price pressures, we expect the current account deficit to widen to a 10-year high of 3.3% of GDP in F2023,” it said.
On monetary policy, Morgan Stanley said it expects repo rate hikes of 50 basis points each in the June and August meetings, to be followed by back-to-back rate hikes to take the policy rate to 6% by December 2022.
It further noted that slowdown in global growth, higher commodity prices, and potential risk aversion in global capital markets expose India to downside risks. The report underscored that key channels of impact will likely be higher inflation, weaker consumer demand, tighter financial conditions, the adverse impact on business sentiment, and a delay in capex recovery. “On the other hand, a positive resolution of geopolitical tensions and decline in global commodity prices would improve the domestic and external demand outlook,” it said.
