Nomura raises 2022 Indian GDP forecast to 7.7%, sees inflation at 5.3%

15 Jun '21

2 min read

Pic: Shutterstock

Japanese research and brokerage house Nomura has raised India’s gross domestic product (GDP) forecast for 2022 by 0.7 percentage points (pp) to 7.7 per cent despite the second wave of COVID infections that brought economic activity in most cities to a standstill in the past few months. It has also rejigged the forecasts for consumer price inflation (CPI) and current account deficit.

“We raise our 2021 and 2022 current account (CA) deficit forecasts to 1.5 per cent and 1.3 per cent of GDP, respectively (from 1.1 per cent and 0.8 per cent), and CPI inflation to 5 per cent and 5.3 per cent (from 4.9 per cent in both years). We also pencil-in an additional 25bp repo rate hike in Q3 2022,” wrote Sonal Varma, managing director and chief India economist at Nomura, in a co-authored note with Aurodeep Nandi recently.

Nomura said the first flush of growth indicators for May suggest a significant hit to consumption and services, with the manufacturing and export sectors being more resilient. The overall impact, both said, is turning out to be less than during the first wave.

Downside risks, however, include a third wave, a slower pace of vaccination, capital outflows and higher commodity prices. Upside risks include a faster pace of vaccination, a top Indian business daily reported citing Nomura.

“The bottoming of ultra-high frequency indicators at end-May and the measured reopening across states suggest the worst might be over, although growth is likely to rise only gradually in June,” Nomura said.

GDP, according to their estimates, is likely to contract by 4.3 per cent quarter-on-quarter (QoQ) in the second quarter, much smaller than during the first wave (minus 24.7 per cent).

Beyond the second quarter, tailwinds such as strong global growth, an increased pace of vaccination, easy financial conditions and front-loaded fiscal activism should help GDP growth reach 9.8 per cent in 2021 and 7.7 per cent in 2022, Nomura said, and expects 50 per cent of the Indian population to be inoculated by end-2021.

Meanwhile, Nomura sees policy normalisation to begin in Q4-2021, with liquidity normalisation and a 40 basis point (bp) hike in the reverse repo rate. "We now expect a cumulative 75bp of repo rate hikes in 2022, in light of higher inflationary pressures," both said.

Fibre2Fashion News Desk (DS)

More Textiles News - India...