INSUBCONTINENT EXCLUSIVE:
The Reserve Bank of India may resume easing of rates from the first quarter of the next fiscal year to address growth concerns as current
inflationary pressures are transient, Japan-based financial services major Nomura said.
Nomura also expects fiscal policy to play a bigger
role in reviving growth.
India could be an outlier among major some emerging market economies to rebound from a tepid growth in 2019, it
said.
One of the major contributing factors to the current slowdown is the crisis in the NBFC sector, according to Nomura.
“Domestic
credit conditions remain tight as market concerns in the shadow banking sector have persisted for too long, in our opinion,” said Sonal
Varma, chief India and Asia (ex-Japan) economist at Nomura in the Asia 2020 outlook
“Hence, we believe India’s growth is set to slow further in Q4, delaying the recovery expected by consensus.”
Nomura has projected
that GDP growth will surprise consensus on the downside again in 2020 at 5.5 per cent compared to the consensus forecast of 6.3 per cent.
It
notes that India’s GDP growth slipped from 5.8 per cent in January-March quarter of 2019 to 4.5 per cent in the July-September quarter
after the crisis in the NBFC sector broke out in September 2018
“Contrary to the market’s current optimism that growth has likely bottomed, we believe growth will slide further to 4.3 per cent in Q4
and stage a weak uptick to 4.7 per cent in Q1 2020.”
Nomura expects inflation to continue at the higher growth trajectory for some more
time and overshoot the RBI’s 4 per cent target owing to high food price inflation and other supply-side shocks
“We see this as a transitory phenomenon
The RBI is likely to ease again in Q2 2020, however the burden of growth heavy lifting now seems to be shifting to fiscal policies,” said
the report.
Nomura expects growth in major global economies to weaken in 2020
US growth may slip from 2.3 per cent to 1.8 per cent, China 6.1 per cent to 5.7 per cent, the euro area 1.2 per cent to 0.9 per cent and
Japan 1.0 per cent to 0.2 per cent.
This will be offset by a handful of smaller emerging markets — Brazil, Mexico, India, Turkey and South
Africa — rebounding from tepid growth in 2019 and hence expect world GDP growth to hold steady at 3.1 per cent in 2020.
Globally,
inflation is expected to remain subdued, notably in the big advanced economies, such that the Fed, ECB and Bank of Japan will not raise
policy rates in 2020 or in 2021, the report said.