The Hindu Business Line : Credit Suisse sees recovery in consumer spending in H2

Mumbai, July 17 “There will be a recovery in consumer spending in India in the second half of financial year 2007-08 contributing to strong GDP growth,” global investment bank, Credit Suisse has said. The bank expects GDP growth of 9.4 per cent and 9.6 per cent for the financial year 2007-08 and 2008-09 respectively.

The investment bank is also positive on the rupee and its end-March 2008 USD/INR forecast is 39. “The appreciation of the rupee is unlikely to have an impact on exports,” Credit Suisse said in a release. “The fundamentals are supportive of further rupee appreciation,” it added.

There could be a 100 bps hike in CRR and 30 bps hike in repo rate till January 2008, said Mr Sailesh Jha, senior regional economist with Credit Suisse. “However, if key economies rise interest rates, there could be a global liquidity crunch which will be an external impact on the economy apart from oil price hike and global risk averseness,” he added.

The impact of a 175-bps rise in the repo rate to 7.5 per cent since September 2005 has been limited on consumer spending and that it is likely to continue, said Mr Jha.

The outlook for cars, motorcycles and residential property related to consumer spending and consumer durables and staples is positive, the report said.

“There is a lot to be positive about. I believe consensus concerns on consumer spending have been overdone, and those views will have to be upgraded sooner rather than later,” said Mr Jha. “On the key issue of interest rates, Credit Suisse expects rates to peak by the first quarter of 2008,” he added.

The bullish outlook on consumer spending has also been attributed to the growing expectations in investment spending. Robust capacity additions by Indian corporates, higher public investment spending in the power and highway sectors, greater economic activity in developing States and significant replacement capital spending needs have been the key factors behind the positive outlook.

The agricultural growth is expected at 3 per cent, Mr Jha said.