India: Economic growth might have bottomed – ING

In view of Prakash Sakpal, Research Analyst at ING, Indian economic growth might have bottomed, but the recovery is not in sight yet. He adds, that they see limited scope of policy accommodation sustaining a sub-potential growth in the period ahead.

Key Quotes

“We, in line with consensus, forecast India’s gross domestic product (GDP) growth accelerating to 6.4% year-over-year in July-September quarter, the second quarter of the current fiscal year 2017/18. Growth slowed to a 3-year low of 5.7% YoY in the first quarter. The anticipated improvement informs more about what happened a year ago, the low base effect, than what happened this year. GDP data is due on Thursday, November 30.”

“Weak domestic demand remains a drag on GDP growth. Demonetisation in late 2016 threshed private consumption and introduction of Goods and Services tax in July this year intensified the negative impact further. The GST also weighed on business, causing lower profits and therefore weak investment spending. A modest acceleration in export growth in the last quarter met with continued strong import growth and wider trade deficit sustaining net trade a drag on GDP growth for the third consecutive quarter. Agriculture and industries remained the product-side sources of weak GDP growth.”

“This is important data before the next Reserve Bank of India monetary policy meeting next week (December 6). GDP growth will likely remain below potential over the rest of the FY2017/18 and well into the next financial year. We also expect inflation to continue to grind upward due to rising global oil prices, the weaker rupee and the wider fiscal deficit. There will be little to no scope for increased fiscal or monetary policy accommodation to support growth in the near-term.”