Moody’s Investors Service reduced India’s growth forecast for the calendar year 2022 from 9.5 percent to 9.1 percent and slightly reduced its growth expectations for 2023 from 5.5 percent to 5.4 percent, citing the global impact of Russia’s invasion of Ukraine.
The global credit rating agency, which had increased India’s GDP growth forecast for 2022 from 7% to 9.5 percent less than a month ago, said it was now lowering its global growth outlook and forecasting higher inflation in light of the surge in commodity prices, supply shortages, business disruptions, and dented sentiment due to geopolitical strife.
Moody’s says that India is vulnerable to oil prices
India was particularly vulnerable to high oil prices because it was a net importer of crude oil, although as a surplus grain producer, its agricultural exports could benefit from the global high prices in the short term, Moody’s said.
“High fuel and potentially fertilizer costs would put a strain on government finances in the future, potentially limiting planned capital spending,” the report stated, citing these factors as reasons for the 0.4 percentage point reduction in growth forecast. India, for example, stood to benefit from wheat exports, Moody’s noted.
While the extent of the global economy’s damage will depend on the duration and scope of the Russia-Ukraine conflict, Moody’s noted that the recovery has been slowed but not derailed. Alternative downside scenarios, on the other hand, envision a global economy tipping into a recession, even as other risks such as new COVID-19 waves, monetary policy missteps, and social risks associated with high inflation dampen the growth outlook.
“We now expect the G-20 economies to expand collectively at 3.6 percent in 2022, down from our February forecast of 4.3 percent growth. Growth will further decelerate to 3% in 2023,” the rating agency stated, noting that Russia was the only G-20 country to experience contraction.
‘The Russian economy will contract”
“We forecast that Russia’s economy will contract by 7% this year and 3% in 2023, down from projected growth rates of 2% and 1.5%, respectively, prior to the invasion of Ukraine,” the report noted. “The first half of 2022 will be fraught with difficulties. Commodity price inflation, demand-supply imbalances, inflationary pressures, volatile financial markets, and geopolitical tensions all contribute to a challenging backdrop “As stated in the report.
It indicated at the time that the ‘bear scenario’ was more likely due to the risk balance shifting to the downside. Moody’s predicted that rising inflation would accompany weakening growth in that scenario, with sanctions against Russia resulting in a significant decline in energy supply, driving up oil and gas prices.