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Economists acknowledge early signs of recovery, more optimistic about FY’19

by January 12, 2018 General

Increasingly more economists are now betting for a gradual recovery factoring in the fact that we are done with the adverse impact of demonetisation and Goods and Services Taxes (GST). After HSBC, Deutsche Bank , Morgan Stanley and now DBS among others, all are betting on a higher economic growth in FY’19

“India is showing a little bounce as well. After demonetization and the introduction of GS T knocked growth off track, demand is now gradually recovering. Officials have also stepped up their efforts to tackle non-performing assets in the banking sector, which should improve growth over time, said HSBC in a report.

Deutsche Bank says that Indian economy is poised for a cyclical upswing in 2018 and beyond. We forecast India’s real GDP growth to rebound to 7.5% in FY19, from a likely 6.6% outturn in FY18, supported by buoyant consumption growth and some pickup in private capex activity.

Singapore based DBS has pointed to the high-frequency data which signal an improvement in the underlying trends, even if all engines are not firing away. “Consumption is on track to improve, which, along with better external demand, could support manufacturing and services.” It said

Recent high frequency growth indicators suggest that the growth momentum has gathered pace in December, said a report by global investment bank, Morgan Stanley. Purchase Managers’ Indices (PMIs), sales of commercial vehicles, steel and cement demand growth have accelerated on a sequential basis, suggesting a further uptick in economic activity. “We expect the trade data to also mirror this strength – with both exports and imports growth holding up well” it said.

But they also warn of risks. Most of them warn of the fiscal slippages and a possible fallout of a possible further sharp rise in crude oil prices.

“Public investment will continue to be strong in FY19, but not at the cost of fiscal slippage, in our view” said Kaushik Das of Deutsche Bank in a report.

According to DBS, for now, these stability concerns are primarily reflected in the rupee debt markets. “If India’s growth gets back on track in the rest of FY18, gaining further momentum into FY19, it will be able to partly offset the likely deterioration in its domestic macro environment and cushion the fallout of any unexpected shocks’ it said

While HSBC said that the recovery will likely be relatively gradual, preventing price pressures from rebounding and allowing the Reserve Bank of India to keep rates on hold for the time being.