Indian economic growth likely to decelerate to 6.5 pct y/y in 2017, says Scotiabank

Currently, the Indian economy is undergoing a soft patch. The real GDP growth data for the second quarter was disappointing with output rising just 5.7 percent year-on-year after an already soft print of 6.1 percent year-on-year in the first quarter of this year. The slowdown was widespread including consumer and public spending. However, fixed investment growth returned to positive territory yet it continues to be rather weak.

“We expect the growth deceleration to be temporary, reflecting disruptive structural reform implementations. India’s real GDP growth will likely slow to 6½ percent y/y in 2017 from the 7.6 percent pace recorded in 2016”, stated Scotiabank in a research report.

India’s medium-to-longer-term outlook is more encouraging. The reforms such as the goods and services tax, bankruptcy code and various attempts to formalize the economy are expected to be growth-supportive in the quarter’s ahead as they simplify India’s complicated business environment and encourage private sector investment. Moreover, ongoing progress on cleaning up bank balance sheets would improve monetary policy transmission and stimulate lending.

“We expect India’s economic growth to accelerate to 7½ percent y/y in 2018–19”, added Scotiabank.

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