ADB trims Asia’s growth forecast, retains India’s at 7.6% for 2019

Indian economy continues on a robust growth path as it recovers from temporary shocks resulting from the demonetization of large bank notes and the introduction of a national Goods and Services Tax in 2017. Improved domestic demand, steady revival in industrial growth and reduced drag from net exports are expected to help Indian economy maintain its growth numbers.

According to an update of flagship annual economic publication by the Asian Development Outlook (ADO), India is expected to grow at a healthy 7.3 per cent in the current fiscal and 7.6 per cent in FY 2019.

ADB expects growth to maintain its strength and pick up next year as the economy continues to adjust to the reforms and investor sentiment improves. India's economy grew by a strong 8.2 per cent in the first quarter of FY 2018.

Further, in its Asian Development Outlook report, the ADB maintained developing Asia's growth forecast at 6 per cent this year, but trimmed the projection for 2019 to 5.8 per cent from 5.9 per cent in July amid the growing trade dispute between the world's two largest economies and tighter global liquidity.

The United States and China has imposed fresh tariffs on each other's goods as the world's biggest economies showed no signs of backing down from an increasingly bitter trade dispute that is expected to hit global economic growth.

Meanwhile, China's growth projection for this year has been kept at 6.6 per cent, but next year's outlook has been slashed by 0.1 percentage point to 6.3 per cent amid sluggish demand growth and the grumpy relationship with the U.S. Beijing has set a growth target of around 6.5 per cent this year, the same as last year, which it handily beat with an expansion of 6.9 per cent.

South Asia is poised to remain as the fastest growing in the region as the ADB maintained its growth estimates of 7 per cent for this year and 7.2 per cent for next year.

However, moderating export growth, hastening inflation, net capital outflows and a deterioration balance of payments clouded the growth outlook for Southeast Asia, with growth this year projected to slow to 5.1 per cent from the July forecast of 5.2 per cent.

In addition to the trade war, signs of the U.S. economy overheating could prompt the Federal Reserve to raise interest rates at a faster-than-expected pace, which would pose a risk for countries in the region already contending with currency weakness and the threat of capital flight. Countries with elevated private debt like Malaysia, China, South Korea and Thailand could experience destabilizing effects on their financial sectors.

Latin Manharlal Group

India’s economic growth quickens to 8.2% in April-June

Despite the falling rupee and the growing concerns around a possible global trade war, India’s economic growth shows signs of a sustainable, V-shaped recovery, spurred by an upswing in manufacturing activity and recovery of private investment, buoyed by strong consumer demand.

According to the Central Statistics Office (CSO), India’s Gross domestic product (GDP) growth rose to a nine-quarter high of 8.2 per cent in the first quarter of 2018-19, compared with 5.6 per cent in the same quarter last year. In the fourth quarter of 2017-18, GDP growth was at 7.7 per cent.

This surge in economic growth ahead of national elections in 2019 would help augment the government amid a debate over its economic record versus that of its predecessor following the release of back-series data recently. The robust surge in GDP data will also be factored in by the Reserve Bank of India’s monetary policy committee at its next review scheduled for October 3-5. 

Further, India continues to remain the fastest-growing large economy in the world, with China's growth coming down to 6.7 per cent in April-June 2018 from 6.8 per cent in January-March of the year.

According to the government data released, manufacturing grew at a nine-quarter high of 13.5 per cent largely owing to a low base effect, while the services sector expanded at a slower pace. The services sector grew at a pace of 7.3 per cent in Q1FY19, down from 7.7 per cent in Q4FY18.

However, economists remained sceptical of sustaining the growth momentum in the coming quarters. There are some risks for the economy looming, which includes higher oil prices, tightening global financial conditions and a shortfall in taxes that could put budget targets out of reach. Further, the rupee’s slump to a record below 71 per dollar could deter foreign investors, fan imported inflation and prompt intervention from the central bank, all of which carry implications for growth.

However, the government expects that even its projections of up to 7.5 per cent of GDP growth in FY19 may be crossed. Reforms and fiscal prudence are serving the economy well and this growth in an environment of global turmoil represents the potential of New India.

In the interim, the International Monetary Fund pegs that Asia’s third-biggest economy will grow 7.3 per cent in the fiscal year through March 2019 and 7.5 per cent in the next. The Reserve Bank of India, which has increased interest rates twice since June to curb inflation, expects the economy to expand 7.4 per cent in fiscal 2019.

Latin Manharlal Group