Economists, too, cut GDP growth forecasts

Updated - January 16, 2018 at 12:11 AM.

Lower full-year growth by 30-50 bps citing weak recovery, demonetisation

BL02_BNK_STEEL

Although GDP growth in the second quarter was higher at 7.3 per cent compared with 7.1 per cent in the first quarter, economists are not impressed and believe the recovery has been shallow.

Further, they expect GDP to shrink in the third quarter owing to the fallout of demonetisation. They are cutting their forecasts for full-year GDP growth by 30-50 basis points.

Care Ratings’ Chief Economist Madan Sabnavis said that GDP growth in the second quarter has been driven by government spending to a large extent.

While manufacturing, trade, transport and finance, among others have grown at lower rates, capital formation continues to fall, reflecting low private investment, he said.

He said in his report, “Under these conditions, we do revise our GDP estimate for the year to 7 per cent from 7.3 per cent earlier with a downside risk, depending on how fast normalcy returns to the economy on the currency front. (Seven per cent growth is based on Q3 growth of 5.5-6 per cent and Q4 growth of 7.5-8 per cent).”

Indranil Sen Gupta, economist at Bank of America Merrill Lynch, said in his report that numbers and activity indicators support their call that the Indian economy is growing at 4.5-5 per cent (in old GDP series), consistent with previous downturns.

He has cut growth forecasts by about 50 bps to 6.9 per cent in FY17 and to 7.2 per cent in FY18 after September growth disappointed at 7.3 per cent (7.5 per cent was the consensus expectations) with demonetisation set to hit activity in December as well.

He reiterates his view that lending rate cuts (75 bps by September 2017) hold the key to recovery. In addition, the turnaround should be driven by a pick-up in consumption, driven by the Seventh Pay Commission and better rains, rather than investment, although an adverse wealth effect from demonetisation should dampen demand in the first half of calender 2017.

Published on December 1, 2016 17:38