Indian economic growth likely to have accelerated to 6.8 pct in Q2, says DBS Bank

The Indian economy is expected to have dusted off the post-demonetisation lull seen in the first quarter of this year and gained in the second quarter, noted DBS Bank in a research report. Weak GDP deflators are expected to have given a statistical lift to headline growth, countering the weakening impact of the GST rollout on selected sectors.

According to DBS Bank, the real GDP of India is expected to have grown 6.8 percent in the second quarter, an acceleration from 6.1 percent growth in the first quarter. This is likely to have been underpinned by frontloaded government spending and private consumption. Private consumption is expected to have gained from low inflation and frontloading of purchases ahead of the tax changes. On the contrary, private sector investments were sluggish, with preGST uncertainty adding to their already cautious outlook, noted DBS Bank.

Inventories were drawn-down ahead of the tax change, while business surveys pointed to sobering sentiments. Net trade was also unlikely a support because of a sharper rise in imports than exports, widening the trade gap.

On the supply-end, gross valued added growth also probably improved to 6.3 percent year-on-year from the first quarter’s 5.6 percent. Timely rainfall underpinned farm output, while service sectors barring financial and real estate, gained from an easing cash crunch.

Manufacturing activity possibly extended its weak patch as inventories were drawn down, inferring from the deceleration in manufacturing output to 1.2 percent in the second quarter from 7.2 percent year before. The second quarter PMIs also slowed sharply because of the uncertainty over the GST impact.

“We expect a soft 1HFY17/18 to be followed by a stronger 2H as the short-term disruption caused by the GST changes fades and consumption gets a lift from high real rates and higher public sector allowances. For the year, we maintain our 7.3 percent GDP and 6.8 percent GVA growth estimates”, added DBS Bank.

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest