India: Economy in need of a stimulatory kick start – NAB

Gerard Burg, senior economist at National Australia Bank, points out that India’s economic growth continued to slow in the June quarter – down to 5.0% yoy (compared with a relatively weak 5.8% in Q1) and was the slowest rate of growth since March 2013, with weakness in both private consumption and investment persisting from the previous quarter.

Key Quotes

“We have lowered our forecast for Indian growth, given the weaker than expected outcome in Q2, with growth at 5.7% in 2019, 6.8% in 2020 and 7.1% in 2021. Easing monetary policy is expected to support a modest recovery in the short term (led by investment), however downside risks (particularly around consumption) persist.”

“A key uncertainty is the Government’s commitment to its fiscal deficit target (3.3% of GDP) this financial year.”

“Following a weak period at the start of 2019, India’s industrial production recovered in the middle of the year – with growth stabilising in July at around 3.3% yoy (on a three month moving average basis).”

“The Reserve Bank of India has continued to ease monetary policy, cutting the Repurchase Rate by 35bps in June to a 9 year low of 5.4%. The 35bps cut was larger than expected and was the fourth straight rate cut in 2019.”

“Access to credit remains an issue for many borrowers. The collapse of a high profile non-bank lender in late 2018 has led to a liquidity crisis in the shadow banking sector – with banks and other funding sources pulling back as risk concerns became elevated. So far there is little sign of improvement, largely cutting off finance to portions of the economy.”