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Outlook 2020: India's economy may remain tepid; US GDP may be flat

Three of India’s growth engines - private consumption, private investment, exports have slowed significantly.

December 25, 2019 / 10:34 AM IST

Viram Shah

Global growth in 2019 slowed to its lowest since the global financial crisis.

Rising trade tensions related to tariffs, especially between the United States and China, and general policy uncertainty were two key contributors to the growth slowdown.

Further, growth was also dragged down due to growth slowdowns in large emerging markets such as Brazil, India, Russia, and Mexico. Global GDP growth stood at 3 percent (0.6 percent lower than 2018), while trade volume growth decreased to 1.1 percent versus 3.6 percent in 2018.

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Looking at the Indian economy, in particular, 2019 has been a forgettable year. Growth for Q3 2019 stood at 4.5 percent, below market expectations of 4.7 percent.

Overall, this is the sixth consecutive quarter where growth declined. Three of India’s growth engines - private consumption, private investment, exports have slowed significantly.

Domestic consumption, the biggest driver of India’s economic growth (it contributes about 60 percent of GDP growth) has slowed tremendously, hampered by tightening credit and poor consumer sentiment.

Outlook for 2020

To reverse the downward trend and to stimulate the economy, the Indian government has already initiated a flurry of initiatives, such as corporate tax reduction, financial sector restructuring, and interest rate reductions (RBI has performed 5 rate cut in 2019 alone).

Nonetheless, the economic outlook for 2020 remains tepid. Rate cuts have not been as impactful as initially hoped, as banks are not passing the lower rate to consumers, and there are still challenges in reviving domestic consumption.

However, the government still has one more arrow in its quiver - infrastructure spending. The government is planning to spend Rs 100 lakh crore on infrastructure projects in the next five years to boost rural employment.

Globally, growth is expected to revive in 2020. The IMF expects global GDP growth to increase to 3.4 percent in 2020 compared to the 3 percent growth in 2019. This increased growth will come largely from emerging markets and, to a certain extent, an improving outlook in Europe.

US GDP growth will largely be flat (projected to be around 2 percent in 2020 against 2.3 percent in 2019).

Although still high, the US consumer confidence has declined in the past four months as we enter 2020, and the US manufacturing sector has been in a slump that is being aggravated by the US-China trade war.

To boost growth, the US central bank has cut rates and with the cooling of the trade war, most economists are optimistic about the 2020 outlook for the US.

(The author is Co-Founder & CEO, Vested Finance)

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol Contributor
first published: Dec 25, 2019 10:34 am

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