Strong rebound tipped for India after poor third quarter

September 7, 2017

NEW DELHI – Global asset manager Natixis is predicting that India’s economy will weaken further in the third quarter, promoting a further interest rate cut, but beyond the short-term, growth should rebound strongly, helped by the diminished negative impact of demonetisation and GST.

“Moreover, the rate reductions coupled with low oil prices should fuel demand, not to mention the favourable base effects. With strong demand, any supply side reform should brighten medium term growth prospect,” Natixis says. 

High frequency indicators show that exports will still underperform in Q3, with credit growth remaining subdued, but one bright spot is the recovery of money in circulation, which will likely normalise by Q4 2017, it adds.

India’s economy slowed to its lowest growth rate in three years to 5.7% YoY in Q2 from +6.1% previously.

Private consumption, a key anchor to growth, slipped to 6.7% YoY (7.3% in Q1) while investment only marginally turned positive (1.6%YoY) after contraction in the previous quarter.

Government spending did expand by 9.5%YoY in Q2, but this was not enough to offset private demand slowdown.

And despite a global trade upturn, export growth weakened to 1.2% YoY in Q2 from 10.3%YoY in Q1, contributing negatively to GDP, Natixis says. (ATI).