India's Growth to Slow to 5.9% in 2023: Goldman Sachs

Goldman Sachs analysts predict that India’s economic growth will slow down from 6.9% in 2022 to 5.9% in 2023 as a post-Covid boom fades away.

“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.

“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.

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.

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

Inflation Drop

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 6.5%.

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