Moody’s Analytics on Tuesday said India’s domestic economy, rather than trade, is its primary engine of growth and the slowdown in economic activity late last year will only be temporary.

The government data released last week showed India’s gross domestic product (GDP) growth slowed to a three-quarter low of 4.4 per cent in October-December mainly due to a contraction in manufacturing and low private consumption expenditure.

While the manufacturing sector contracted by 1.1 per cent, private consumption expenditure slowed to 2.1 per cent in the October-December quarter of the current fiscal.

In its report on emerging market outlook, Moody’s Analytics said growth slowed substantially on a year-ago basis, with private consumption lagging overall GDP for the first time since the Delta wave of Covid-19 struck the economy in the second quarter of 2021.

“Our take is that the slowdown late last year will be temporary and even salutary, helping to wring some of the demand-side pressures out of the economy without stopping it wholesale. On the external front, better growth in the US and Europe’s nascent recovery will propel India at the mid-year mark,” it said.

The US and Europe are India’s largest trade partners and are important destinations for exports of business services.

The decline in GDP growth in the December quarter was stark compared with 11.2 per cent growth in the same quarter of last fiscal.

In the current fiscal, the economy grew 13.2 per cent in the April-June quarter and 6.3 per cent in July-September.

India’s domestic economy, rather than trade, is its primary engine, in contrast to most other emerging-Asia economies. “With this in mind we observe India’s fourth-quarter performance with caution,” it said.