Indian second quarter FY20 economic growth is expected to have decelerated further to 4.6 percent year-on-year from 5 percent seen in the prior quarter, according to an ANZ in a research report. Coming against favourable base effects, it might mark the slowest rate of growth since March 2013. The Indian economy is expected to grow 5.1 percent in FY 2020 (ending March 2020).
High frequency indicators continued to trend lower in September, with industrial production clocking its worst fall in eight years. Led by capital goods production, this bodes unfavourably for overall growth. Moreover, PMI readings as well as steel and cement production continue to post falling trends.
“We are cautious on a material improvement in the growth outlook in H2 FY20. October figures for auto sales merely show a decelerating pace of decline and it is conceivable that the passenger vehicle segment may have been temporarily buoyed by one-off festival related demand”, said ANZ.
The output gap is estimated to have widened to 0.8 percent of GDP in the second quarter FY 2020 from 0.4 percent previously. It is also likely to stay wide until the fourth quarter of FY 2021.
“We therefore maintain our call for the Reserve Bank of India (RBI) to deliver another 50bps of cumulative cuts in the remainder of this fiscal year. A 25bp rate cut at the next policy review on 5 December appears imminent”, added ANZ.
