Moody's raises India's 2024 GDP growth estimate to 6.8% from 6.1%

Moody's said it sees India's retail inflation at 5.2% in 2024 and 4.8% in 2025

Global ratings agency Moody's Investors Service raised India's 2024 GDP growth estimate to 6.8% from November 2023 forecast of 6.1% amid "capital spending by the government and strong manufacturing activity".

Moody's also said it sees India's GDP growth at 6.4% in 2025 from earlier forecast of 6.3%.

"India's real GDP expanded 8.4% year-over-year in the fourth quarter of calendar year 2023, resulting in 7.7% growth for full-year 2023. We believe that with global headwinds fading, the Indian economy should be able to comfortably register 6-7% real GDP growth and we therefore forecast around 6.8% growth in calendar year 2024, followed by 6.4% in 2025. Capital spending by the government and strong manufacturing activity have meaningfully contributed to the robust growth outcomes in 2023. We expect policy continuity after the general election and continued focus on infrastructure development. Given the solid growth dynamics and inflation above the 4% target, we do not expect policy easing any time soon," said Moody's.

In its February update of the Global Macro Outlook 2024-25, released on February 29, Moody's said, "The Reserve Bank of India (RBI) will likely keep rates on hold in the coming months given strong growth and firm inflation." Moody's said it sees India's retail inflation at 5.2% in 2024 and 4.8% in 2025.

"Headline inflation in January eased to 5.1% from 5.7% in the month prior. Core inflation also moderated to 3.5%, down from 3.8% in December. The RBI held the repo rate steady at 6.5% in February — the same level since March 2023. Given the solid growth dynamics and inflation above the 4% target, we do not expect policy easing any time soon," said Moody's.

Moody's also said growth of G20 economies will stabilise at modesly lower levels in 2024.

"We forecast G20 economies will collectively expand by 2.4% in 2024 and 2.6% in 2025, down from 2.9% in 2023. The G20 advanced economies will slow from 1.8% in 2023 to 1.5% in 2024 and 1.6% in 2025. We estimate growth of the G20 emerging market countries at 3.8% this year and 3.9% in 2025, after 4.7% in 2023. The only economy likely to contract this year is Argentina," said the ratings agency.

Moody's also said that there are indications of private capex cycle gaining steam.

"While private industrial capital spending has been slow to pick up, it is expected to pick up with ongoing supply chain diversification benefits and investors' response to the government's Production Linked Incentive scheme to boost key targeted manufacturing industries. According to the RBI, the total cost of private corporate projects sanctioned by major banks and financial institutions was up 23% during April-December 2023 compared with the same period a year ago, suggesting that the private capex cycle is gaining steam.

"Additionally, rising capacity utilisation, robust credit growth and upbeat business sentiment point to an improving outlook for private investment. High-frequency indicators show that the economy's strong Q3 and Q4 momentum carried into the first quarter of this year. Robust goods and services tax collections, rising auto sales, consumer optimism and double-digit credit growth suggest urban consumption demand remains resilient. On the supply side, expanding manufacturing and services PMIs add to evidence of solid economic momentum," said Moody's.

India’s economy grew by better-than-expected 8.4% in the final three months of 2023 – the fastest pace in one-and-half years, fortifying Prime Minister Narendra Modi’s record of providing a world-beating growth rate ahead of general elections.

The growth rate in October-December was higher than 7.6% in the previous three years, and it helped take the estimate for the current fiscal (April 2023 to March 2024) to 7.6%, according to the data released by the National Statistical Office (NSO) last week.

The estimate for 2023-24 is better than the 7.3% projection made in January and exceeds by a significant margin the outlook of 6.7% and 6.3% made by the IMF and World Bank, respectively.

The year 2024 is an election year for several G-20 countries including India, Indonesia, Mexico, South Africa (Ba2 stable), the UK and the US.

Implications of elections can go beyond borders and economic and public policy in today's increasingly fractious world, Moody's said.

"Leaders elected this year will influence domestic and foreign policies for the next four to five years. Businesses are accordingly responding to evolving geopolitical dynamics by reorganizing supply chains and capital sources," Moody's said.

It said geopolitical realities will be influencing international trade flows, capital flows, international migration trends and international organizations in the years to come. Domestically, industrial and trade policies of several countries are intertwined with foreign policy.