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India unlikely to witness recovery in consumption or investment growth owing to sluggish demand, says ANZ research
ANZ Research’s latest monthly update for the Indian economy does not point to any meaningful recovery in either consumption or investment growth. Activity indicators have also weakened in August compared to July, led by sombre PMI readings. The lack of a clear recovery in these indicators underscores the concern that demand remains sluggish.
The government has in recent weeks announced several measures to prop up growth. The impact of such measures will likely be piecemeal, as the need is for a solid push for reforms. Therefore, the GDP forecast has further been downgraded to 5.8 percent y/y for FY20 (ending March 2020), the report added.
Consumption activity continues to pose the biggest drag on demand, led by weakening auto sales, which touched new lows in August. The slowdown is broad-based, across passenger and commercial vehicles, two-wheelers and tractor sales.
Imports weakened in similar vein, with non-oil and non-gold imports declining for the seventh straight month in August. Manufacturing activity is seeing mixed trends with a lack of sustained recovery. Lack of demand is leading to declining levels of capacity utilisation across firms.
"Amid a worsening fiscal position, the Reserve Bank of India (RBI) will likely follow up with more easing. We expect a 40bp reduction in the repo rate to 5.00 percent at the upcoming October meeting. Beyond that, we expect an additional 50bps of cuts in the remainder of this fiscal year, bringing cumulative easing to 200bps in the current easing cycle," ANZ Research further commented in the report.
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