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Mild India recovery from slowdown by March next

Mild India recovery from slowdown by March next

Sentinel Digital DeskBy : Sentinel Digital Desk

  |  29 Aug 2019 1:03 PM GMT

Mumbai: Global broking firm Goldman Sachs has forecast a mild recovery of the Indian economy from the economic slowdown by March next year, assuming a significant pick-up in consumer confidence and loosening of domestic financial conditions.

“The pick up in confidence could emanate from policy and regulatory measures already taken jointly by the government and the RBI, along with expectations of further announcements. Overall, our baseline forecast implies a pick-up in CAI (Current Activity Indicator) of 0.3 pp by March 2020, with predicted CAI increasing to 6.6 percent from its current level of 6.3 percent,” Goldman Sachs said in ‘India’s Economic Slowdown: This Episode is Different’.

The broking house further said it expects a moderate pick-up in economic activity. “Our forecasts assume a substantial improvement in consumer confidence over the course of the year and a significant easing in domestic financial conditions.”

As of June 2019, the current slowdown has lasted for 18 months - making it the longest episode since 2006. It further added, “Notably, the start of the current slowdown dates to January 2018, well before the concerns relating to NBFCs started to surface early September.”

Given the timing of the slowdown, it seems to be the case that the default episode could not have been the trigger behind the slowdown. However, it could very well be a symptom of the underlying problems that likely predated the actual default, it said.

Even though the slowdown does not seem to be initiated by the default episode, the liquidity problems still intensified post the default, and seems to have contributed significantly to the overall extent of the slowdown, said Goldman Sachs.

More than half of the decline in activity during the current slowdown phase has been driven by consumption, and a third of the consumption slowdown is concentrated in autos.

Notably, the consumption slowdown appears to be broad-based, with components other than auto contributing more than twice the effect of autos to the total consumption decline.

The firms said India has taken steps to control the slowdown. Indian policymakers have acted to mitigate the current slowdown. Policy interest rates have declined by 110 bps in 2019. The RBI has urged banks to enhance transmission and is exploring a new regulatory framework to introduce external benchmarks for pricing of banks’ assets and liabilities. (IANS)

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