India’s GDP growth to slow to 5.9% in 2023 on fading re-opening impact: Goldman Sachs

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Goldman Sachs expects India’s economic growth to slow to 5.9% next year from an estimated 6.9% growth in 2022, as post-COVID Fed stimulus and monetary tightening weigh on domestic demand .

“We expect growth in 2023 to be a story of two parts, with a slowdown in the first half (due to lack of reopening effects),” Shantanu Sengupta, India economist at Goldman Sachs, said in a note on Sunday.

India’s growth in the seven months since March 2022, which Goldman Sachs considers a post-COVID reopening, was faster than other emerging markets in the first seven months, the US investment bank said.

“In the second half, we expect growth to pick up again as global growth recovers, net exports decelerate and the investment cycle picks up,” Sengupta said.

The Reserve Bank of India (RBI) last week projected the domestic growth rate for 2022-23 at 7%.

Sengupta expects the government to continue its focus on capital expenditure and sees signs of nascent investment recovery, with favorable conditions helping the economy pick up pace in the second half.

Goldman Sachs expects headline inflation to fall to 6.1% in 2023 from 6.8% in 2022, adding that government intervention was likely to keep food prices in check and that core commodities inflation had probably peaked.

“But core inflation is likely to remain around 6% year-on-year due to upside risks to services inflation,” Sengupta said.

Goldman expects the RBI to hike the repo rate by 50 basis points (bps) in December 2022 and by 35 bps in February, taking the repo rate to 6.75%. The forecast is brighter than the market consensus of 6.50%.

On India’s external position, Sengupta believes that the worst is over, with the dollar likely to be nearing its peak. He expects the current account deficit to remain wide due to weak exports, but said growth capital may continue to chase India.

Sengupta currently puts USD/INR INR=IN at 84, 83, and 82 over the 3-, 6-, and 12-month horizons, respectively, compared to 81.88.

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