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GDP growth cuts intensify

GDP growth cuts intensify

The knives are out and they are chopping economic growth forecasts. Each day brings more news which confirms the trend of a slowing economy. The fact that economic growth will slow down in the current financial year and the government will miss its fiscal deficit target is a no-brainer.

Now, the pundits are gazing still further into the future. The picture they see is gloomier. Macquarie Research has cut its 2012-13 GDP forecast to 6.9% from 7.9% citing lack of policy reforms and lagged impact of monetary policy tightening.

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Macquarie is not the only one. Ambit Capital on 17 October has cut its next year GDP growth forecast to 6.2% from an earlier estimate of 7.2%.

Ritika Mankar of Ambit Capital said in a note: We are cutting our GDP growth forecast … as the persistence of macroeconomic uncertainty translates into weak investment demand growth which in turn affects industrial sector growth and services sector growth.

Note that economists are shying away from cutting current year forecasts. Motilal Oswal in its report dated 11 November has downgraded the current year GDP growth estimate to 7.2% from 7.6% earlier. BNP Paribas has sounded even more pessimistic. It expects the economy to witness ‘hardish landing.’

Richard Iley of BNP Paribas said in a note: While any marked improvement in WPI inflation is still a few months away, the latest activity data confirms that our long-held expectation for a hardish landing for the economy is now materialising. Given our forecast for a US recession and stagnation in the euro zone, GDP growth looks on course to drop below 7% in the coming quarters.

Richard Iley adds further: The risk is that the RBI’s revised growth projection is still too optimistic. Our GDP forecasts have been well below consensus since at least early summer. Current targets are for growth of just 7.2% for 2011-12 and 7.1% for 2012-13.

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