Why Goldman Sachs thinks Indian economy's post-Covid rebound is slowing

economy

Indian Market
by 5paisa Research Team Last Updated: 2022-11-21T13:56:22+05:30

India’s economic growth could slow down to as low as 5.9% in 2023, as the impact of post-Covid reopening is beginning to fade, Goldman Sachs has said in a report. 

If this happens, this will be a sharp slowdown from the 6.9% growth the country is expected to clock in 2022. 

How has India’s economic growth looked so far this year?

India's growth in the seven months since March 2022, which Goldman Sachs considers the post-COVID reopening, was faster than most other emerging markets in the first seven months after they reopened, the U.S. investment bank said.

What exactly has Goldman Sachs said in its note?

"We expect growth to be a tale of two halves in 2023, with a slowdown in the first half (due to dwindling reopening effects)," Santanu Sengupta, India economist at Goldman Sachs, said in a note on Sunday.

"In the second half, we expect growth to re-accelerate as global growth recovers, the net export drag declines, and the investment cycle picks up," Sengupta said.

On India's external position, Sengupta reckons the worst is over, with the dollar likely near the peak. He expects the current account deficit to remain wide due to weak exports, but said growth capital may continue to chase India.

What is the Indian central bank’s growth estimate for the country?

The Reserve Bank of India (RBI), last week, pegged the domestic growth rate at 7% for 2022-23.

What does Goldman Sachs expect the Indian government to do?

Sengupta expects the government to continue its focus on capital spending and sees signs of the nascent investment recovery continuing, with conducive conditions helping the economy pick up in the second half.

And what about inflation?

Goldman Sachs expects headline inflation to drop to 6.1% in 2023, from 6.8% in 2022, saying government intervention was likely to cap food prices and that core goods inflation had probably peaked.

"But upside risks to services inflation are likely to keep core inflation sticky around 6% year-on-year," Sengupta added.

So, will interest rates go up further?

Goldman expects the RBI to hike the repo rate by 50 basis points (bps) in December 2022 and by 35 bps in February, taking the repo rate to 6.75%. The forecast is more hawkish than the market consensus of 6.50%.
 

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