“India, as a net importer of commodities, has benefited from falling prices and growth will be driven by rising consumption. However, a sustained improvement in domestic private investment would be required for the growth momentum to be sustained,” the American agency said in its Global Macro Outlook 2016-17.
It said growth will pick up slightly, climbing to 7.5 percent in 2016 and 2017, from 7.3 percent in 2015.
“Weak global growth has meant a nine percent year-over-year decline in total exports in real terms in 2015 Q4, after declining by an average annual rate of 5.6 percent in the first three quarters of 2015,” it said.
Official data last week showed India’s merchandise exports in April were valued at $20.57 billion – down 6.74 percent in dollar terms against $22.05 billion in the like month of last year, signalling a decline for the 17th straight month.
Further, investment spending fell in the last quarter of 2015 as did industrial production, while capital utilisation rates remain low, the report added.
“Private spending will be supported by the implementation of the public sector salary increases, mandated by the 7th Pay Commission, and a rise in rural incomes, provided the forecast of a good monsoon is realised,” Moody’s said.
Data last week also showed that growth of India’s manufacturing, which has the maximum weight in the overall index of industrial production (IIP), actually fell by 1.2 percent in March after rising during the month before.
According to the report, weak growth in emerging markets, driven by low commodity prices and waning export demand, will continue to weigh on the global economy this year.
Moody’s revised downward 2016 growth forecasts for emerging economies Argentina, Brazil, Mexico and Turkey, as well as the 2017 growth forecasts for Brazil, Mexico, South Africa and Turkey.
“We continue to expect that emerging markets growth will stabilize and strengthen going into 2017 as the impact of the 2015 terms of trade shocks from lower commodity prices starts to fade,” it said.
Moody’s expects the Chinese economy to slow down to around 6.3 percent in 2016 from 6.9 percent in 2015 with significant fiscal and monetary policy support.
“Downside risks to China’s growth outlook persist, especially if policy support becomes less effective as leverage continues to rise. The knock-on effect on global growth would be significant,” it said.
For G20 advanced markets, Moody’s forecast growth of 1.7 percent for 2016 as compared to 1.9 percent in 2015.
The net impact of the financial markets turmoil seems to have been a shock to confidence as first-quarter macroeconomic data showed weaknesses in a number of countries, it said
Noting that financial markets volatility has subsided and capital flows to emerging markets have started to return, the rating agency said the risks that caused the volatility remain under the surface.
“Uncertainty remains surrounding the future path of US interest rates, downside risks to China’s growth outlook, the potential impact of the rise in corporate leverage globally, and resurfacing geopolitical and domestic political risks,” it said.