Economic Slowdown : Fitch Solutions Insists India’s GDP Growth Will Bounce Back, But At A Slower Pace

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After slumping to an over six-year low, India’s economic growth will pick up over the coming quarters but the rebound is expected to be weaker than before, Fitch Solutions said as it trimmed GDP forecast for the current fiscal to 6.4 per cent from 6.8 per cent previously.

India’s real GDP growth slumped further in Q1 of FY2019/20 (April March) to 5 per cent year-on-year, from 5.8 per cent in Q4 (January-March) FY2018/19 due mainly to a sharp slowdown in private consumption growth.

“We at Fitch Solutions believe that growth has likely bottomed out and will start to rebound over the coming quarters. However, noting ongoing pressure on the external sector and private consumption, we now expect this rebound to be weaker than before,” the rating agency said in its comments on India’s growth.

The combination of fiscal and monetary stimulus, continued reform momentum, and favourable base effects would lead to a rebound in growth, it said.

“While we at Fitch Solutions continue to forecast growth to pick up over the coming quarters supported by reforms, fiscal stimulus, and favourable base effects, we now expect the rebound to be weaker than before, given a subdued external and private consumption outlook,” it said.

Fitch Solutions said it was revising its growth forecast to 6.4 per cent in FY2019/20, down from 6.8 per cent previously.

“In our view, the FY2019/20 full-year Union budget in July and the government’s fiscal stimulus package announced on August 23 fall slightly short in their effort to boost growth significantly.

“However, we remain optimistic that further announcements related to fiscal support over the coming months could offer more effective measures to shore up growth, particularly given the government’s windfall from the RBI’s annual dividend,” it said.

Also, reforms are expected to continue being an important factor driving growth over the longer term.

“The government’s announced measures so far have struck us as insufficient to lift growth or sentiment. While we remain optimistic that more effective measures could be announced over the coming months, there remains the risk that this does not materialise.

“Moreover, even if more effective measures do come through, it would also take some time to feed through the economy, with the lift to headline growth possibly only manifesting in FY2020/21,” it said.