Following the unexpectedly weak Gross Domestic Product (GDP) growth in the April-June quarter of fiscal year 2017-18, global ratings agency, Fitch Ratings in its latest report has trimmed its forecast for India’s economic growth in 2017-18 by half a percentage point to 6.9% from its earlier projection of 7.4%. However, it expects the economic activity to accelerate in the second half of the fiscal year with the waning impact of one-off events including the demonetisation shock in late 2016 and the Goods and Services Tax (GST) rollout in July, which had dampened growth in the short term.
The ratings agency in its latest Global Economic Outlook (GEO) has said that the large stock of non-performing loans on bank balance sheets could, however, dampen the outlook for credit growth and business investment. It also said that the global economy has improved markedly this year and is on course to recording its fastest expansion since 2010. Noting that consumption should drive the pick-up in growth, Fitch has forecasted acceleration in activity in the second half of the current fiscal. Besides, global growth has been upgraded to 3.1% in 2017 from 2.9% in June, and 2018 growth has been upgraded to 3.2% from 3.1%.
The report further stated that motorcycle sales, a good indicator of rural household consumption, have gained strong momentum, bouncing back in July and August after having fallen sharply in 1H17(first half of 2017). Investment is also expected to tick up in the quarters ahead, in part bolstered by ramped-up public sector infrastructure spending. However, it added that monetary policy loosening has taken place in the context of rapidly falling inflation, implying that the RBI’s policy stance as measured by the real policy rate has not been so accommodative.
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