No cut in FY15 GDP forecasts, despite slowdown

Economists ignore downside risks posed by weak exports and higher spending cuts

Despite a sequential slowdown in economic growth (5.3% in Q2 against 5.7% in Q1), economists are not cutting their full year forecasts just yet. Economists believe that despite the slowdown, the risks are fairly balanced on both sides.

The Street continues to bet on Modi government’s reforms, which it believes will have a multiplier effect on the economy. Also, the sharp slowdown in inflation is expected to provide the central bank room for rate cuts. Even though these upside risks could well be offset by the sharp spending cuts in the second half of the fiscal and slowing exports, the Street is expected to wait before cutting full year’s GDP growth estimates. 

 

 

Rohini Malkani of Citi says: “Despite the deceleration in 2Q GDP growth, we maintain our view of FY15 GDP growth at 5.6% as the risks are fairly balanced.” 

 

What is driving this optimism are project clearances and improvement in liquidity.

 

CARE Ratings too has retained its GDP growth forecast band at 5.2-5.5% for FY15. In its report, Madan Sabnavis and Garima Mehta of CARE say that in order to record a healthy growth of over 5%, the economy would have to see continued improvement across three sectors, especially in industries and services, given that agricultural growth is factored in to be lower this year on account of the disrupted monsoon. The government will not be able to provide a push thanks to the fiscal constraints. 

 

CRISIL Research says that the early signs of Q3 are not quite upbeat, going by the sales of automobiles in the festive month of October. CRISIL Research reaffirmed its 5.5% GDP forecast for FY15 in a note on Friday. 

 

Motilal Oswal Securities has kept its full year GDP estimate at 5.6% even though nominal GDP growth in the first half of the fiscal slowed down to 10.8% compared to the 11.9% in the corresponding period last fiscal.