India’s economy may decelerate in the second half of 2023 due to a global economic slowdown.

This is according to JP Morgan’s head of emerging market economics, Jahangir Aziz, during an interview with Economic Times.

“Our view is that in the second half of the year, growth is going to slow down. And although this might seem odd, some slowdown in growth is needed to support macroeconomic and financial stability,” Aziz stated.

“As much of recent growth in India has been driven by exports, especially of services, with the global economy slowing in the second half of the year, including the US entering a modest recession, India’s growth will also slow. But macroeconomic stability should not be impaired given India’s large foreign exchange reserves and the government holding to its fiscal deficit target,” he added.

The head of emerging market economics at JP Morgan went on to say that aggressive monetary tightening hasn’t impacted investment and consumption as much as forecast, meaning the US Federal Reserve may need to increase rates further.

Whereas in India, Aziz said the “decline in inflation, because of growth slowing down in the second half of the year, will open up space for the Reserve Bank of India to cut rates.”

Nevertheless, Aziz added this is unlikely the beginning of a prolonged easing cycle, but there could be a degree of easing starting in Q4.

Furthermore, in relation to El Nino risk, Aziz said India could endure a moderate impact on food inflation.

“Given last year’s food stocks and improved food management, I think India is in a reasonably good position to withstand any modest impact from El Nino on food inflation,” Aziz stated.

“If the shock is modest, there are enough revenue and expenditure buffers to keep to this year’s budget target and overall public sector borrowing of 10% of GDP. These numbers should be achievable unless something really bad happens,” he concluded.