India is headed for slower growth next year – more in line with its long-term potential – after the country recorded a two-step pandemic recovery in 2020 and again in 2021-2022, according to Moody's.

The ratings and research firm says that China is not the only weak link in the global economy. "The other giant of Asia, India, also suffered a year-to-year decline in the value exports in October. This is rather disappointing following its rapid recovery from widespread shutdowns last year, and again earlier this year," Moody's Analytics says in its APAC Outlook report.

It, however, adds that at least India relies less on exports as an engine of growth than does China.

Risks to this outlook are largely balanced, the research agency further says. "On the upside, inward investment and productivity gains in technology, as well as in agriculture could accelerate growth. On the downside, if high inflation persists, the Reserve Bank of India would likely take its repo rate well above 6%, causing GDP growth to falter," it says.

This comes days after financial services major Goldman Sachs said it expects India's gross domestic product to grow at 5.9% in the calendar year 2023 compared with 6.9% in 2022.

Even though India, as well as other major economies of the Asia-Pacific region, are expanding due to their own delayed reopening from pandemic-related shutdowns of six to nine months ago, the expected slowdowns in Europe and North America, along with China's sluggish economy, will cause 2023 to be a slower year than 2022 for economic growth, says Moody's.

It further adds that a recession is not expected in the APAC region in the coming year, although the area will face headwinds from higher interest rates and slower global trade growth. "The one exception will be China, which will see some acceleration as current weights on the economy—the zero-COVID policy and the property debt crisis—find resolution at least by the second half of 2023 even as global trade will slow goods production," it says.

The risks to the near-term outlook are largely to the downside, focusing on exports and inflation, says Moody's. "Exports already are easing as a driver of the Asia-Pacific economy…The risk is that the developed economies across the world will all fall into a protracted recession, due perhaps to monetary policy error. This would lead to weakened demand for consumer goods such as apparel that support the lower-income economies of the region such as Bangladesh, Cambodia and Laos," the research agency says. The other primary risk relates to persistent inflation and potentially higher interest rates, it adds.

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