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After Nomura slashed India’s 2023 GDP growth forecast to 4.7 per cent from its earlier projection of 5.4 per cent amid recession fears and rising interest rates, analysts at Morgan Stanley, too, have lowered their GDP growth estimates. They now expect the Indian economy – as measured by GDP – to grow at 7.2 per cent in fiscal 2022-23 (FY23), 40 basis points (bps) lower than their earlier estimates. For FY24, the revised projection stands at 6.4 per cent – down 30 bps.
“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,” wrote Upasana Chachra, chief India economist at Morgan Stanley in a coauthored note with Bani Gambhir.
Global growth, Morgan Stanley said, is likely to slow to 1.5 per cent YoY in quarter ending December 2022 from 4.7 per cent in the quarter ended December 2021. Slower trade growth, tighter financial conditions and changes in commodity prices are the three main reasons, it said, is why they see the pace of global growth slow going ahead.
That said, support from the government’s supply-side policy response back home and the reopening activity is likely to cushion the fall in economic growth, Morgan Stanley said. Another silver lining for the Indian economy, according to them, is the fall in commodity prices, which will help sustain the economic momentum.
“We expect reopening vibrancy to help the informal sector, in turn supporting consumption growth, especially in the services segment. The government’s policy reforms and expansion of public infrastructure spending alongside a trend of supply-chain diversification should provide support to private capex,” Chachra and Gambhir wrote.
Morgan Stanley expects the CPI inflation to average 6.5 per cent in F23, as compared to its forecast of 7 per cent earlier. However, they do not expect much change in inflation beyond FY23, and expect it to average 5.3 per cent in FY24. The near-term risks to the inflation trajectory, it said, stem from changes in commodity prices and/or domestic food prices.
“We expect the near-term inflation trajectory to be lower than previously estimated, given deceleration in commodity and food prices. As such, we expect CPI inflation to be just shy of the 6 per cent mark from Nov-21 onwards. However, we highlight that risks to the same could emerge from unexpected changes in the food price trajectory,” Morgan Stanley said.
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