Goldman Sachs expects India’s economic growth to slow to 5.9% next year, from an estimated 6.9% growth in 2022, as the boost from the post-COVID reopening fades and monetary tightening weighs on domestic demand.
“We expect growth to be a tale of two halves in 2023, with a slowdown in the first half (due to dwindling reopening effects),” Santanu 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 the post-COVID reopening, was faster than most other emerging markets in the first seven months after they reopened, the US investment bank said.
“In the second half, we expect growth to re-accelerate as global growth recovers, the net export drag declines, and the investment cycle picks up,” Sengupta said.
The Reserve Bank of India (RBI), last week, pegged the domestic growth rate at 7% for 2022-23.
Sengupta expects the government to continue its focus on capital spending and sees signs of the nascent investment recovery continuing, with conducive conditions helping the economy pick up in the second half.
Goldman Sachs expects headline inflation to drop to 6.1% in 2023, from 6.8% in 2022, saying government intervention was likely to cap food prices and that core goods inflation had probably peaked.
“But upside risks to services inflation are likely to keep core inflation sticky around 6% year-on-year,” Sengupta added.
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 more hawkish than the market consensus of 6.50%.
On India’s external position, Sengupta reckons the worst is over, with the dollar likely near the peak. He expects the current account deficit to remain wide due to weak exports, but said growth capital may continue to chase India.
Sengupta pegs the USD/INR at 84, 83, and 82 over 3-, 6- and 12-month horizons, respectively, compared with 81.88 currently.
