Amid shock GDP slump, economists cut growth forecasts, see deeper rate cuts

Economists cut their forecasts for India’s economic growth and predicted deeper interest-rate cuts after data showed a sharper-than-expected slump in output. 

Goldman Sachs Group Inc and Citigroup Inc lowered their growth projections to 6% for the fiscal year through March 2020, while Oxford Economics Ltd said there’s a risk the expansion could be weaker than that.


Data late Friday showed gross domestic product rose 5% in the June quarter from a year ago, the slowest pace in six years and lower than all the forecasts in a Bloomberg survey of economists. The weakness was broad-based, with consumption and export growth slowing while investment remained subdued.

The slump will put the onus on the Reserve Bank of India to continue cutting interest rates after 110 basis points of easing already this year, the economists said.


The government -- which is sticking to its 7% growth projection for the fiscal year -- has in recent days announced a number of steps to improve India’s longer-term growth, without providing any immediate support. It will merge state-run banks to help spur credit growth, ease foreign investment rules and give concessions on vehicle purchases. 

Here’s a look at the new projections from economists:  

ECONOMIST NEW GDP FORECAST PREVIOUS GDP FORECAST INTEREST RATE FORECAST
Citigroup 6% 7%
  • 25bps cut in October, with 30% probability it could be higher
Goldman Sachs 6% 6.9%
  • 50bps cut in 4Q vs previous prediction of 25bps
Oxford Below 6% -
  • 75bps rate cuts
Nomura 6% 6.5%
  • 40bps cut in 4Q vs earlier projection of 15bps
Bloomberg Economics 6.6% 7% -

 



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