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India: Is there worse in store or light at the end of the tunnel? – Rabobank

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.

Key Quotes

“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.”

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