New Delhi [India], December 3 : Multinational investment bank and financial services company Morgan Stanley has revised India's GDP growth projection to 6.3 per cent, from its earlier estimate of 6.7 per cent for the current fiscal (FY25).
The downgrade comes after the growth slowdown in the quarter ending September 2024. India's GDP growth slowed to 5.4 per cent year-on-year (YoY) in the July-September quarter of 2024, marking its lowest level since March 2023.
This was a significant drop from the 6.7 per cent growth recorded in the previous quarter and fell short of Morgan Stanley's forecast of 6.3 per cent and the consensus estimate of 6.5 per cent.
The slowdown was evident in both private consumption and capital expenditure (capex), although private consumption outpaced capex, growing by 6 per cent compared to 5.4 per cent.
On the other hand, the services sector demonstrated resilience, growing at 7.1 per cent, while the industry sector lagged at 3.9 per cent, with manufacturing and electricity being notable drags.
Despite this moderation, Morgan Stanley believes growth is likely to be bottomed out and forecasts a rebound in the second half of FY25.
The report highlighted signs of recovery in growth in October and November, bolstered by a robust festive and wedding season, and anticipates GDP growth to average 6.6 per cent in the second half of FY25.
Morgan Stanley however, offers an optimistic outlook for India's economic recovery in the second half of FY25, citing increased government spending, improving rural demand, and easing financial conditions as key drivers.
The investment bank expects these factors to counteract the recent slowdown and boost growth momentum in the coming months.
High-frequency indicators from October and November reflect an uptick in economic activity, suggesting that the July-September quarter was the trough of the slowdown.
On the monetary policy front, the report expects the Reserve Bank of India (RBI) to maintain interest rates during its December 6 policy review.
Inflation remains above 6 per cent, but it is projected to ease to 5-5.5 per cent over the next two months. However, tight liquidity conditions in the banking system may prompt the RBI to introduce liquidity-enhancing measures, such as open market operations (OMO purchases). Recent interbank liquidity deficits have pushed the weighted average call rate to 6.7 per cent.
Morgan Stanley identifies three key factors to monitor for sustained recovery. The first is government spending trends, particularly in revenue and capital expenditure, along with cash balances held with the RBI.
The second is agricultural performance, including kharif production and rabi sowing, which will impact food price volatility and rural demand. Finally, domestic liquidity and financial conditions remain critical, as they influence overall economic activity.
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