Goldman Sachs lowers India's GDP forecast for 2023 to 5.9%
What's the story
India was the fastest-growing major economy in the last financial year. However, the country won't be able to sustain the same pace in 2023, says Goldman Sachs Group.
Goldman economists attributed the contraction in growth in the next fiscal to a decrease in consumer demand.
Goldman's slashed forecasted growth rate of 5.9% in 2023 is still better than Moody's Investor Service's predicted 5.2%.
Context
Why does this story matter?
The global economy has been under a lot of pressure in the second half of 2022. Rising inflation, the supply chain crisis, and the Ukraine-Russia war, among others, have stunted the post-pandemic momentum.
India has been better off than most of its compatriots this year. However, the impact of the economic downturn this year will be felt next year.
Forecast
GDP growth will be down to 5.9% from 6.9%
According to Goldman Sachs, India's consumer demand will take a hit in 2023. In a report published on Sunday, a group of economists led by Andrew Tilton wrote that higher borrowing costs and fading benefits of the post-pandemic economic reopening will stifle consumer demand in the coming months.
The country's GDP may grow by 5.9% in 2023, down from 6.9% estimated this year.
Two halves
Growth will slow down in the first half
India's growth story in 2023 will be one of two different halves, according to Goldman economists. The growth in the first half will be comparatively slow "as the reopening boost fades, and monetary tightening weighs on domestic demand."
It is likely to gain momentum in the second half "as global growth recovers, drag from net exports diminishes, and investment cycle picks up."
Challenges
Indian economy is under several challenges
India came out of the pandemic as a rejuvenated force. In 2021-2022, it reclaimed its spot as the fastest-growing major economy.
Since then, however, the country has faced several challenges, including an aggressive US Federal Reserve, higher consumer-price growth, and increasing fiscal and external deficits.
A pickup in the investment cycle in the second half of 2023 could aid in India's rebound.
Inflation
Headline inflation will go down next year
India's headline inflation, which is estimated to be 6.8% this year, will go down to 6.1% in 2023, said the Goldman economists.
According to them, there is an upside risk (uncertain possibility of gain) to inflation. The Reserve Bank of India will hike the repo rate by 50 and 35 basis points in December and February respectively, to hit a terminal rate of 6.75%.