Rabobank analysts note that India’s GDP print of 5.0% for fiscal Q1 2019/20 showed that the economic activity has slowed to its lowest rate in 6 years.
“At this point it is uncertain whether the economic slump has bottomed out.”
“From a structural perspective a rebound in growth to 6% seems likely given the substantial widening of India’s output gap. However, at this stage there is insufficient high-frequency data for fiscal q2 to support the case for a strong rebound.”
“The key downward risks to the rebound in growth outlook are a hard Brexit, a further escalation of the trade dispute between the US and China or its extension to Europe/Japan.”
“The absence of a structural reform agenda by the government is another factor tempering optimism on India’s structural growth trajectory.”
“While a substantial stimulus package would be required to lift the spirits in the Indian economy, the government has only limited options available given its unfavorable fiscal position.”
“The only actor able to provide stimulus in a relatively painless way is the Indian central bank. We anticipate that the RBI will cut its policy rates by 40bps after the October MPC meeting and another 25bps in December.”