Morgan Stanley lowers India's GDP growth forecast to 7.2% as global economy staggers

GDP (Representative image)

Morgan Stanley has slashed its forecast for India’s economic growth for this financial year and the next in view of a slowdown in global growth.

The growth forecast for the country's gross domestic product (GDP) for 2022-23 has been lowered by 40 basis points to 7.2 percent, while that for 2023-24 has been reduced by 30 basis points to 6.4 percent, according to a note.

“With the overall exports to GDP at at 21 percent, a slower-than-expected global growth trend would delay India's full-fledged growth recovery as external demand weakens sequentially,” Chief India Economist Upasana Chachra said.

“We see downside risks emanating from a weaker-than-expected global growth trend, supply-side-driven commodity price shock and faster-than-warranted tightening of financial conditions.”

However, the house remains constructive on India’s medium-term growth path, despite cyclical headwinds from the slower global growth trend. It expects supportive supply-side policy reforms to help the economy grow above the pre-pandemic rates in 2022 and 2023.

While monetary policy normalisation continues, financial conditions won’t be restrictive and weigh significantly on consumption growth. As such, domestic consumption trend should partially offset weaker external demand, Morgan Stanley said.

The near-term inflation trajectory will be lower than previously estimated, given the recent deceleration in commodity and food prices.

“We expect Consumer Price Index inflation to be just shy of the 6 percent mark from November 21 onwards. However, we highlight that risks to the same could emerge from unexpected changes in the food price trajectory,” Morgan Stanley added.

Morgan Stanley expects the CPI inflation to average 6.5 percent against 7 percent earlier in this fiscal year and retains the CPI estimate at 5.3 percent for the next fiscal.

It expects the terminal policy repo rate at 6.5 percent, to be reached by April 2023, from the current level of 4.9 percent.