UBS sees sharp dip in GDP print in second half of fiscal; full-year growth at 7.3% against 7.5% earlier

Mumbai: Swiss brokerage UBS cut the country's growth estimate to 7.3 percent from the earlier 7.5 percent, citing a likely deceleration in the second half of the fiscal due to global headwinds and the rising oil prices.

The lower forecast follows similar moves by other analysts, including those at the global rating agency Moody's, which also expects GDP growth to come at 7.3 percent. However, in the last monetary policy review in October, the RBI had stuck to its 7.4 percent forecast.

UBS said the real GDP growth will slow down sharply to 6.7-7 percent in the second half from 8.2 percent in the June quarter, bringing the full-year growth lower to 7.3 percent.

"Headwinds, including tighter financial conditions, high oil prices, slowing global growth and a still muted private corporate capex recovery are weighing on the growth momentum," it explained in a note Monday.

The ongoing liquidity crunch led being faced by shadow banks can result in a slowdown in discretionary consumption, derailing the overall growth momentum over the next few quarters, it warned.

 UBS sees sharp dip in GDP print in second half of fiscal; full-year growth at 7.3% against 7.5% earlier

Representational image. Reuters.

A dip in government capital expenditure given the budget constraints and delay in investment decisions due to political uncertainties ahead of the national elections will also lead to moderation in the "benign" recovery in fixed capex growth seen over the past few months, it said. It said growth will recover marginally to 7.3-7.4 percent in fiscal 2020 or the one thereafter and added that it is 0.20 percent below consensus on it.

"The political outcome of the 2019 general elections will be a key event to watch out for both for a change in regime and policy focus of the new government," it said. Current account deficit is estimated to narrow to 2.4 -2.5 percent of GDP in FY20 from 2.8 percent estimate in FY19, it said.

The level of the rupee, which is majorly influenced by the CAD, will be at 76 against the dollar by March 2019 and 77 in March 2020, it said.

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Updated Date: Nov 13, 2018 11:12:53 IST