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Business News/ Economy / Weak global demand, rate hikes may curtail India growth -economists

Weak global demand, rate hikes may curtail India growth -economists

Ahead of India's Q3 GDP results for the current financial year, economists have warned that poor global demand, rate hikes might hinder India's GDP growth

India's growth trajectory might remain affected due to weak global demand and rate hikePremium
India's growth trajectory might remain affected due to weak global demand and rate hike

Weak global demand and monetary tightening by the Indian central bank could further drag down economic growth that likely slowed in the October-December quarter as pent-up demand eased and private investment remained patchy.

Also Read: Dalal Street Week Ahead: India Q3 GDP, Feb auto sales among factors that will drive markets this week

The slowdown in growth seen in last quarter of 2022 could continue and erode the 6.4% growth for the fiscal year through March 2024 estimated by the central bank, economists warned, ahead of the release of India's GDP data on Tuesday.

Also Read: India's Q3 GDP to be out today. Here's what to expect

India's economy probably grew 4.6% year-on-year during the three months through December, a Reuters poll of economists showed last week, slower than the 6.3% growth seen in the preceding quarter but in line with government forecast of 7% for the year ending March 31.

The sharp fall in year-on-year growth rate is partly due to a fading of pandemic-induced base effect which had contributed towards higher growth figures in fiscal 2021/22, economists said.

Also Read: IMF retains India’s GDP growth outlook for next fiscal at 6.1%

"There are signs that higher interest rates are feeding through to the real economy (of India)," Shilan Shah, emerging market economist at Singapore-based Capital Economist said in a note last week, citing signs of weakening consumer demand.

He expects the economy to grow at a weaker-than-consensus 4.3% year-on-year in the quarter through December 2022.

The median forecast from the Reuters' survey of 42 economists interviewed between Feb. 10 and 24 was that gross domestic product in Asia's third-largest economy could further slow to 4.4% in the January-March quarter, and growth to average 6% in the year through end-March 2024, below the government and the central bank's estimates.

The Reserve Bank of India (RBI), has raised its benchmark repo rate by 250 basis points since May last year to contain inflation, and economists expect a further rate hike of 25 basis points to 6.75% in April before pausing until year end.

At least two members of India's six-member monetary policy committee have called for a pause in rate hikes, citing rising global and local risks to growth.

The central bank, however, remains focused on above-target inflation as high-frequency indicators suggests that stronger rural demand may help offset weaker urban consumption.

Growth recovery has held up with consumption supported by urban demand and gradual improvement in rural demand, said Gaura Sen Gupta, economist at IDFC First Bank Economic Research, which sees GDP growth at 5% in the October-December quarter.

"The moderation is mainly due to a less supportive base-effect, while quarter-on-quarter growth remains positive."


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This story has been published from a wire agency feed without modifications to the text.

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Updated: 28 Feb 2023, 06:12 AM IST
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