India maintains top economic growth position, but downside risks remain: Reuters poll

Birds fly over the financial district skyline in central Mumbai, India, June 18, 2019.Reuters/Francis Mascarenhas/File photo Acquisition of license rights

BENGALURU, Sept 27 (Reuters) – A Reuters survey of economists found that forecast risks are skewed to the downside, as India is supported by government spending ahead of May’s general elections. The country is expected to grow the fastest among major economies this fiscal year.

The Narendra Modi government has ramped up spending in recent years to build roads, railways and other infrastructure to help India counter global economic slowdown trends, but so far it has not created enough jobs. I haven’t been able to do it.

Asia’s third-largest economy is expected to grow 6.2% in the fiscal year ending March 2024, with the next It was 6.3%, the same as last month’s forecast.

Expectations for this term ranged from 4.6% to 7.1%.

But most economists say expected growth remains well below potential, with a drier-than-normal monsoon season so far contributing to a country with a population of more than 1.4 billion people, where about half of the workforce could be a constraining factor for an economy where agriculture employs people.

After an impressive 7.8% growth in the previous quarter, economic growth is expected to slow to 6.4% this quarter, then to 6.0% in the October-December period, and then to 5.5% in early 2024. It had been.

“We all know that the overall picture is very positive, but I feel like discussions about economic growth often get lost between cyclical and structural economics, and right now it’s definitely cyclical. ,” said Miguel Chanco, Head of Emerging Markets. Asia Economist at Pantheon Macroeconomics.

“Many of the drivers of very strong growth from mid-2021 to last year have dried up. A weak external backdrop is weighing on India’s economic growth, as well as weak consumer spending and weak investment.”

A majority of economists responding to a follow-up question (22 out of 36) said risks to their 2023/2024 GDP growth forecast are skewed to the downside.

What’s the next move after RBI?

The poll shows that India’s retail inflation rate is expected to average 5.5% this fiscal year and 4.8% next fiscal year, exceeding the RBI’s medium-term target of 4%, while more than two-thirds of economists (23 out of 34) ) answered that there was a bias towards higher risks. .

Economists expect the Reserve Bank of India’s next move to be a rate cut, even though inflation is not expected to reach its target over the entire forecast period.

Nearly 60% (28 out of 48) of economists expect the Reserve Bank of India to cut interest rates by at least 25 basis points by July, with a median rate cut of 6.25% in the second quarter of next year. There is.

That was at a time when global peers were expected to cut interest rates.

All but one of the 71 economists surveyed said the RBI would keep the key repo rate unchanged at 6.50% at the end of its October 4-6 meeting, and one said it would increase the key repo rate by 25 basis points. They expected interest rates to rise. The median forecast indicates that prices will remain at this level for the remainder of the current fiscal year.

“As long as core prices remain accommodative, central banks are likely to tolerate supply-driven inflationary pressures, but will closely monitor developments in inflation expectations,” said Alexandra Harman, lead economist at Oxford Economics. Stated.

“While we still expect a rate cut in early 2024, recent inflation trends make it more likely that the policy tilt will be reversed.Government action should cool food prices in the coming months, but , a rise in oil prices is likely to put upward pressure on prices.”Headline inflation. ”

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