NEW DELHI: UBS cut India’s 2022-23 economic growth forecast by 70 basis points to 7% on Friday, citing slowing global growth due to high commodity prices, and weak local demand because of energy price hikes, inflationary pressures and a struggling labor market.
The downgrade comes a week after the World Bank lowered its economic growth forecast for India and the whole South Asia, citing worsening supply bottlenecks and rising inflation risks along with the Ukraine crisis.
“We believe the pass-through of high global commodity prices to the real economy will affect households’ purchasing power and company margins, and constrain the fiscal space available for capex,” UBS economist Tanvee Gupta Jain said in a note.
India meets nearly 80% of its oil needs through imports and rising crude prices push up the country’s trade and current account deficit while also hurting the rupee and fueling imported inflation.
The Reserve Bank of India earlier this month raised its inflation forecast for the current fiscal year to 5.7%, 120 basis points above its forecast in February, while cutting its economic growth estimate to 7.2% from 7.8%.
UBS expects India’s gross domestic product growth to settle at a rate of 6% per annum beyond fiscal 2023.