Moody's cuts India's GDP growth forecast to 5.6% for 2019; says slow employment growth weighs on consumption

Moody's Investors Service on Friday said it has lowered its 2019 GDP growth forecast for India to 5.6 percent as slow employment growth weighs on consumption

Press Trust of India December 13, 2019 13:56:12 IST
Moody's cuts India's GDP growth forecast to 5.6% for 2019; says slow employment growth weighs on consumption
  • Moody's expects economic growth to pick up in 2020 and 2021 to 6.6 percent and 6.7 percent respectively, but sees the pace of growth remaining lower than past

  • We have lowered our 2019 gross domestic product (GDP) growth forecast for India to 5.6 percent, which is lower than 7.4 percent growth in 2018, Moody's said in a report

  • Moody's said fiscal measures undertaken by the government - such as corporate tax rate cuts, bank recapitalisation, infrastructure spending plans, support for the auto sector and others - do not directly address widespread weakness in consumption demand, which has been the chief driver of the economy

New Delhi: Moody's Investors Service on Friday said it has lowered its 2019 GDP growth forecast for India to 5.6 percent as slow employment growth weighs on consumption.

It expects economic growth to pick up in 2020 and 2021 to 6.6 percent and 6.7 percent respectively, but sees the pace of growth remaining lower than past.

"We have lowered our 2019 gross domestic product (GDP) growth forecast for India to 5.6 percent, which is lower than 7.4 percent growth in 2018," Moody's said in a report.

"India's economic growth has decelerated since mid-2018, with real GDP growth slipping from nearly 8 percent to 5 percent in the second quarter (April-June) of 2019," it noted.

Moodys cuts Indias GDP growth forecast to 56 for 2019 says slow employment growth weighs on consumption

Representational image. Reuters.

It further slipped to 4.5 percent in the July-September quarter.

"Consumption demand has cooled notably, with slow employment growth weighing on consumption," it said. "We expect economic growth to pick up in 2020 and 2021 to 6.6 percent and 6.7 percent, respectively, but the pace of growth will remain lower than in the recent past."

Moody's said fiscal measures undertaken by the government - such as corporate tax rate cuts, bank recapitalisation, infrastructure spending plans, support for the auto sector and others - do not directly address widespread weakness in consumption demand, which has been the chief driver of the economy.

In addition, interest rate cuts by the Reserve Bank of India are not being adequately transmitted to lending rates because of the credit squeeze caused by a disruption in the non-bank financial sector, it said.

Commercial vehicle sales in India declined 22.95 percent in the six months ended 30 September, 2019 compared with the same period a year earlier.

"Commercial vehicle sales have been hit by the liquidity squeeze in the financial sector and the economic slowdown, despite support from government stimulus measures to boost demand and vehicle purchases ahead of India's migration to new emission standards," it said.

It expected auto loan delinquencies to increase in the next few quarters as the economic slowdown will constrain demand for freight transportation and put pressure on freight rates.

"However, the slowing economic growth has yet to significantly impact the performance of underlying loans as the decline in commercial vehicle sales over the past quarters has helped ease the surplus capacity situation in the medium and heavy commercial vehicle segments and supported the performance," it added.

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