Ukraine crisis: Moody’s downgrades growth hopes for India

The global rating agency slightly reduced the country’s growth hopes for 2023 to 5.4% from 5.5%, citing the global impact on growth from the aftermath of the Russian invasion of Ukraine

The global rating agency slightly reduced the country’s growth hopes for 2023 to 5.4% from 5.5%, citing the global impact on growth from the aftermath of the Russian invasion of Ukraine

Moody’s Investors Service has slightly downgraded India’s calendar year 2022 growth forecast to 9.1% from 9.5% and 2023 growth hopes to 5.4% from 5.5%, citing the global impact on growth due to the fallout the Russian invasion of Ukraine.

The global ratings agency, which lifted India’s 2022 GDP growth number to 9.5% from 7% less than a month ago, said it is now reducing its global growth outlook and raising inflation forecasts amid surging commodity prices and supply shortages, business disruptions and distressed sentiment towards geopolitical unrest.

India is particularly vulnerable to high oil prices because it is a large importer of crude oil, although its agricultural exports as a surplus grain producer may benefit from high global prices in the near term, Moody’s said.

“High fuel and possibly fertilizer costs would later burden state finances and possibly limit planned investments,” says the reason for the 0.4 percentage point lower growth forecast. India, for example, would benefit from wheat exports, Moody’s stressed.

While the extent of the damage to the global economy would depend on the duration and scale of the Russia-Ukraine conflict, Moody’s said the recovery has stalled but not yet derailed. However, alternative downside scenarios see the global economy slipping into recession, although other risks such as fresh waves of COVID-19, monetary policy missteps and social risks related to high inflation could dampen growth prospects.

“We now expect the G-20 economies as a whole to grow 3.6% in 2022, compared to 4.3% growth projected in our February Outlook. Growth will slow further to 3% by 2023,” the rating agency said, adding that Russia was the only G-20 nation to experience a decline.

“Russian economy will shrink”

“We forecast that Russia’s economy will shrink by 7% this year and 3% in 2023, compared to projected growth of 2.0% and 1.5%, respectively, before invading Ukraine,” she noted fixed.

In its global macroeconomic outlook released on February 24, the day Russia began military operations in Ukraine, Moody’s had said India was on the way to normality but was less optimistic about the global economy’s prospects.

“The first half of 2022 will be challenging. Elevated commodity prices, supply-demand imbalances, inflationary pressures, volatile financial markets and geopolitical tensions will provide a challenging backdrop,” it said.

At the time, it had indicated that its “bearish scenario” was more likely due to downside risks. Under this scenario, Moody’s had expected elevated inflation to be accompanied by slowing growth, with sanctions on Russia leading to a significant drop in energy supplies, leading to a rise in oil and gas prices.

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