Moody’s Investors Service on Thursday cut its forecast for India’s 2019 (calendar) GDP growth by 60 bps to 5.6%, in what reflected a continuing trend of such downward revisions by prominent domestic and foreign agencies.

“We now forecast slower real GDP growth of 5.6% in 2019, from 7.4% in 2018. We expect economic activity to pick up in 2020 and 2021 to 6.6% and 6.7%, respectively, but the pace to remain lower than in the recent past,” Moody’s said in its latest Global Macro Outlook report.

India’s economic growth has decelerated since mid-2018, with real GDP growth slipping from nearly 8% to 5% in the second quarter of 2019 and joblessness rising, it said. “Investment activity was muted well before that, but the economy was buoyed by strong consumption demand. What is troubling about the current slowdown is that consumption demand has cooled notably,” the rating agency said.

Recently, the agency cut its rating outlook for India to negative, even as its reaffirmed the Baa2, the second lowest investment grade rating for the country, citing, inter alia, lower policy and government effectiveness in addressing the economic slowdown and higher debt to GDP ratio.

In October, Moody’s had cut its forecast for India’s FY20 GDP growth by 40 bps to 5.8%. In its latest bimonthly monetary policy statement in October, the Reserve Bank of India cut its growth projection for the domestic economy by a sharp 80 bps to 6.1%, citing ‘generally weaker high frequency indicators for the second quarter’. In a report, SBI economists have forecast India’s GDP growth in Q2 to decline to a disconcertingly low 4.2% on low automobile sales, deceleration in air traffic movements, flattening of core sector growth and declining investment in construction and infrastructure. They have forecast FY20 GDP growth to be 5% from 6.1% projected earlier.

In the latest report, Moody’s said the government has undertaken a number of measures to arrest the growth slowdown: a cut in the corporate tax rates, bank recapitalisation, the mergers of 10 public sector banks into four, support for the auto sector, plans for infrastructure spending, as well as tax benefits for start-ups. “However, none of these measures directly address the widespread weakness in consumption demand, which has been the chief driver of the economy,” it said.

With regard to monetary policy, it said the transmission to lending rates continues to be hindered by the credit squeeze caused by disruption in the non-bank financial sector. “Slow employment growth is weighing on consumption. The interest rate cutting cycle is not adequately being transmitted, which is hampering investment as companies’ borrowing costs remain elevated,” Moody’s said.