Moody’s Ratings in its lates Global Macro Outlook report on Friday projected Indian economy to grow by 7.2% in 2024, driven by gradual recovery in household spending and easing inflation pressures. The rating agency further projected growth rates of 6.6% and 6.5% in 2025 and 2026, respectively.
“From a macroeconomic perspective, the Indian economy is in a sweet spot, with the mix of solid growth and moderating inflation. We forecast 7.2 per cent growth for calendar year 2024, followed by 6.6 per cent in 2025 and 6.5 per cent in 2026,” Moody’s said.
The agency indicates that strong festival season demand and increased rural expenditure, supported by sufficient monsoon, will boost household consumption.
Additionally, inflation is expected to align with the central bank’s target as food costs stabilise supported by increased sowing and sufficient food grain reserves, despite occasional fluctuations in food prices.
Retail inflation reached a 14-month peak of 6.21, exceeding the RBI’s upper tolerance threshold, primarily due to increased vegetable prices. The report also identifies geopolitical conflicts and severe weather conditions as potential factors that could impact inflation.
“Potential risks to inflation from heightened geopolitical tensions and extreme weather events underscore the RBI’s cautious approach to policy easing. Although the central bank shifted its monetary policy stance to neutral while keeping the repo rate steady at 6.5 per cent in October, it will likely retain relatively tight monetary policy settings into next year, given the fairly healthy growth dynamics and inflation risks,” Moody’s said.
With inflation remaining elevated, the central bank is unlikely to reduce benchmark interest rates at its upcoming monetary policy committee meeting next month.
Meanwhile, increased capacity utilisation, positive business outlook and continued government focus on infrastructure development should boost private investment.
India recorded 6.7 per cent real GDP growth year-over-year in 2024’s second quarter, supported by increased household spending, strong investment and robust manufacturing. The July-September quarter also shows signs of sustained economic momentum.
The agency added that strong economic fundamentals, including robust corporate and bank balance sheets, improved external position and substantial foreign exchange reserves support positive growth prospects.
“Most G-20 economies will experience steady growth and continue to benefit from policy easing and supportive commodity prices. However, post-election changes in US domestic and international policies could potentially accelerate global economic fragmentation, complicating ongoing stabilization,” said Madhavi Bokil, Senior Vice President at Moody’s Ratings and author of the report.
The report indicates that G-20 economies will experience reduced growth of 2.8% in 2024, compared to 3.0% in the previous year, with continued moderation expected through 2026.
It also added that while the United States continues to lead amongst developed nations, its economic expansion is expected to decrease. The report indicates that Europe will experience a gradual strengthening of its slow recovery, and China’s economic growth is predicted to slow despite stimulus announced.