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Morgan Stanley, the multinational investment bank and financial services giant, has revised its GDP growth forecast for India to 6.3 per cent for the fiscal year 2024-25 (FY25), down from its earlier estimate of 6.7 per cent, according to ANI reports.
The downward revision follows India's economic slowdown during the July-September quarter of 2024. The GDP growth for this period decelerated to 5.4 per cent year-on-year (YoY), marking its slowest pace since March 2023. This was a sharp drop from the 6.7 per cent recorded in the preceding quarter and fell below Morgan Stanley's prediction of 6.3 per cent, as well as the consensus estimate of 6.5 per cent.
As per ANI, the July-September slowdown was attributed to weak trends in private consumption and capital expenditure (capex). While private consumption grew by 6 per cent, capital expenditure lagged slightly behind at 5.4 per cent. However, the services sector displayed resilience, registering growth of 7.1 per cent, while the industrial sector grew at a modest 3.9 per cent. Within the industrial domain, manufacturing and electricity were cited as key drags on overall performance.
Despite the current moderation, Morgan Stanley remains optimistic about India's economic recovery in the latter half of FY25. The bank's report predicts that GDP growth will rebound, averaging 6.6 per cent in the second half of the fiscal year, supported by robust festive and wedding season activity observed during October and November.
According to ANI, the bank highlighted several factors likely to drive this recovery, including increased government spending, stronger rural demand, and easing financial conditions. High-frequency indicators from recent months suggest that the July-September quarter represented the lowest point in the slowdown, with growth expected to pick up momentum moving forward.
Regarding monetary policy, Morgan Stanley anticipates that the Reserve Bank of India (RBI) will maintain its current interest rates in its upcoming policy review on December 6. Inflation, which remains above 6 per cent, is expected to ease to 5-5.5 per cent in the next two months. However, tight liquidity in the banking sector may prompt the RBI to introduce liquidity-enhancing measures, such as open market operations (OMO purchases).
The report further identifies three critical areas to monitor for sustained economic recovery: government spending trends, including capital and revenue expenditures; agricultural performance, particularly kharif production and rabi sowing; and domestic liquidity conditions, which influence overall economic activity.
Morgan Stanley's cautious yet optimistic outlook highlights the challenges and opportunities India faces in navigating its path toward economic stability and growth in the coming months.
(With inputs from ANI)
