Weaker exports likely to slow economy


Normal trend: Workers prepare roti at a bakery in New Delhi. With the Reserve Bank of India raising interest rates to stem inflation, a further slow down in the economy is expected. — AFP

BENGALURU: The Indian economy likely returned to a more normal 6.2% annual growth rate in July to September after double-digit expansion in the previous quarter, but weaker exports and investment will curb future activity, a Reuters poll shows.

In April to June, Asia’s third-largest economy showed explosive growth of 13.5% from a year earlier, thanks mainly to the corresponding period in 2021 having been depressed by pandemic control restrictions.

But with the Reserve Bank of India (RBI) now raising interest rates to tamp down inflation, which is running above its target range of 2% to 6%, the economy is set to slow further.

The latest quarter’s annual growth forecast of 6.2% in a Nov 22-28 Reuters poll of 43 economists was a tad lower than the RBI’s 6.3% view. Forecasts ranged between 3.7% and 6.5%.

“The exceptionally favourable base of the April to June 2022 quarter is behind us, which will result in a normalisation of the year-on-year real gross domestic product (GDP) growth rate from July to Sept onward.” said Kaushik Das, India and South Asia chief economist at Deutsche Bank.

“It should also make it easier to gauge the true underlying economic momentum.”

Although business surveys indicated weakening economic activity in most major economies, where central banks are responding to soaring inflation with higher interest rates, business sentiment has remained relatively strong in India.

Still, industrial production increased at an annual pace of only 1.5% on average last quarter, its weakest in two years, pointing towards a significant slowdown in manufacturing activity, a key driver of growth.

“Gross domestic product is expected to increase sequentially, led by continued recovery in services,” said Sakshi Gupta, principal India economist at HDFC Bank.

He added that there were signs that consumption was uneven, and that mining and manufacturing are expected to be a drag.

On the demand side, lower global growth hit exports in July to September,The finance ministry said last week that a global slowdown might dampen the country’s export businesses outlook.

Meanwhile, the RBI raised its key policy interest rate to 5.9% from 4% in May and is widely expected to add another 60 basis points by the end of March.

“Between December and next February, the headwinds to growth may become more evident,” said Deutsche Bank’s Das. — Reuters

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