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Standard Chartered analysts have sharply lowered their GDP growth forecast for India to 6.2% from 7.0% previously, for FY20 (year ending March 2020).

Key Quotes

“We have been highlighting downside risks to India’s GDP growth for some time. We think that India’s FY20 GDP growth will likely be slower than the 6.8% pace in FY19, owing to (1) the sharper and more broad-based slowdown than expected in Q1-FY20 GDP growth (5.0%; consensus was 5.7%) – the weakest since 2013; (2) significant weakness in household consumption demand; and (3) continued global growth uncertainty amid trade tensions – we recently lowered our China GDP forecast to 6.2% from 6.5% for 2019.”

“Based on high-frequency indicators, we believe the worst is past, if no further exogenous shocks occur. We do see signs of a turnaround in economic activity – our composite indicator of high-frequency data shows an improvement, primarily led by resumed government investment. Consumption also shows marginal signs of a turnaround. Thus, we expect GDP growth to improve in H2-FY20, to 6.9% versus 5.5% in H1-FY20, on increased economic activity post-elections, continued lower oil prices, lower interest rates and a favourable base effect. However, global uncertainty, stresses in the financial sector and weak sentiment will likely keep any pick-up tepid.”

“The lower-than-expected Q1-FY20 GDP print will likely raise voices in favour of both monetary and fiscal stimulus. We expect more rates cuts – 65bps of cuts by H1-FY21, including 25bps in October 2019. However, we believe that space for fiscal stimulus is limited, as India has been running a combined (central and state, and off-budget) fiscal deficit of an average 7.7% of GDP for the past three years.”