Nomura has lowered its India gross domestic product growth projection for 2023 by 70 basis points from 5.4% to 4.7% as economic recovery faces several headwinds.
“We see rising medium-term growth headwinds from higher inflation, monetary policy tightening, dormant private capex growth and, most importantly, global growth slowdown,” economists Sonal Varma and Aurodeep Nandi said in a note.
Nomura expects GDP growth of 7.2% in 2022 and projects the economy to grow 7% in fiscal year 2022-23 and 5.5% in fiscal year 2023-24.
India’s Covid-hit economy has returned to pre-pandemic levels led by a sharp recovery in the services sector and supported by the lagged effects of easy financial conditions and a public capex push, Nomura said.
“The improvement has been broad-based across consumption, investment, industry and the external sectors. However, exports have started to struggle and elevated imports are pushing up monthly trade deficits to record highs,” it added.
With high crude oil and commodity prices as well as services costs threatening to keep inflation elevated, India’s central bank has quickened its monetary policy normalisation over the last couple of months and is expected to raise policy rates again in early August.
Meanwhile, the Reserve Bank of India Governor Shaktikanta Das has said that the central bank is aware that the growth sacrifice should be within the manageable limit.
Nomura has lowered its projection for the so-called terminal policy rate to 6% from 6.25% given its view of a synchronised global growth downturn with a recession across US and Europe.
It now expects India’s rate hike cycle to end in February 2023, after a 35 basis point rate increase in August and hikes of 25 basis points each in October, December and February.
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