GDP & Fiscal Deficit Review

GDP & Fiscal Deficit Review

Growth nosedives - calls for further rate cut and higher govt spending


The unexpected downshift in Q1FY20 GD P growth to 5% (our expectation: 5.5 %) was due to a severe slowdown in private consumption. This, along with weak lead indicators for Q2, led us to revise FY20 growth estimate to 6.1% from 6.7%. Nominal GDP growth at 8.0% for Q1FY20 is the slowest since FY10. This, we believe, emanates from: 1) the significant slowdown in private consumption (6.2% yoy vs. 10% in Q4FY19) which is reflected in the decline in auto sales and consumer durables production; 2) uncertainty regarding election and budget; 3) tightness in systemic-level credit; and 4) meaningful decline in corporate earnings and sales growth. Government consumption growth of 12.1% yoy in Q1FY20 is likely to be revised downward as it is not in line with the central government’s revenue spending (CGA) growth of 1.7% yoy.

In our view, Q1 GDP is significantly lower than the RBI’s trajectory, making room for at least another 50bps cut - as the policy decision is now anchored toward narrowing the output gap. Based on this, we expect 10-year G-Sec yields to rally further from the current level of 6.5%. However, we believe that GDP in H2FY20 will be higher on: 1) lower base; 2) eventual pick-up in government consumption spending to ~15% yoy; 3) improvement in credit growth to 13%; and 4) multiplier impact of higher government spending on private consumption growth.

Please click here for report.


 

Disclaimer

The information herein is furnished by Emkay. The report is for your reference and information only, and is not warranted to be complete, accurate or timely. Specifically, such content/ report is not intended nor shall it be construed as financial, tax, investment or other advice, or as an offer, solicitation or recommendation of securities or other financial products. You acknowledge and agree that the content/report is provided for your personal use and you undertake not to redistribute or transmit all or any of the content/ report to any third party (whether free of charge or for consideration, in any manner or form whatsoever). DBS is not responsible for any trading decisions, damages or other losses related to the use of this report, and shall have no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of this content/report herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof. Past performance is no guarantee of future results. The value and income derived from investments may increase or decrease. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

 

Thank you. Your feedback will help us serve you better.

Was this information useful?

Thank you for your feedback
Let us know how this article helped:
We're sorry to hear that.
How can we do better?
Enter only letters, numbers or @!$&-/()',.