Indian economy set for weakest quarter of growth in 5 years

The Indian economy likely expanded at its slowest pace in more than five years in the April-June quarter, driven by weak investment growth and sluggish demand, according to economists polled by Reuters.

That would reinforce concerns seen in the minutes from the central bank’s August meeting, which showed policymakers were worried about weak growth and indicated further rate cuts in the next few months to boost the slowing economy.

The poll median showed the economy was expected to have grown at a year-on-year pace of 5.7 per cent in the June quarter, a touch slower than 5.8pc in the preceding three months. But a large minority – about 40pc of nearly 65 economists – expect an expansion of 5.6pc or lower.

“A host of high frequency indicators – consumption and investment – have continued to weaken. The most prominent ones include auto sales, output of consumer durables, cement and steel production.”said Rini Sen, India economist .

These measures, in addition to the risk of further escalation of the U.S. and China trade war are weighing on demand and business confidence in India.

The median response to an extra question in the poll, which was taken Aug. 21-26, showed the average growth rate for the current fiscal year 2019-2020 is likely to be 6.5pc despite a weak start.

But it is a downgrade from 6.8pc predicted just last month and well below the RBI’s projection of 6.9pc.

The RBI lowered its outlook for the fiscal year 2019-2020 at its August meeting. It has cut a total of 110 basis points in the repo rate since February, which includes an unconventional cut of 35 basis points earlier this month to 5.40pc.

But with inflation not expected to rise anytime soon, the central bank will likely ease its benchmark rate by 25 basis points again to 5.15pc at its October meeting, followed by a 15 basis points cut in the first quarter of 2020, according to a separate Reuters poll.

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