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Slowdown To Continue Into Next Year

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India's slowing economic growth and elevated inflationary pressures will stretch well into the next year, a Reuters poll showed, even though expectations are for some respite in the hawkish RBI's fight against inflation.

A poll of more than 20 economists, surveyed during October 12-18, showed that most slashed their forecasts to well under 8 per cent for next two years, a sign that Asia's third largest economy will be negatively impacted by the prolonged euro zone debt crisis and weakening investment at home.

"The sentiment is pretty negative," said Bhupesh Bhameta at Quant Capital. "What is happening on the global front now impacts India's export competitiveness and investment."

The consensus is now for India to grow at 7.6 per cent in the fiscal year ending March 2012 and 7.9 per cent the following year, markedly lower than the 7.9 per cent and 8.4 per cent predicted in July's poll.

Consensus forecasts for India's economic growth have fallen in each of Reuters quarterly surveys since October 2010.

For the quarter ended June, India's economy grew at 7.7 per cent, its weakest pace in six quarters.

Average annual growth in India is expected to remain below 8.0 per cent at least until the third quarter of 2012, much slower than growth during the same period a year ago.

Finance Minister Pranab Mukherjee said on Wednesday he was disappointed with the country's growth components in the last few months.

"It is evident that India's growth rate in 2011-12 will be less than what we presented in February when I presented the budget," Mukherjee told a news conference. The budget had projected economic growth of around 9 per cent this fiscal year.

The Reserve Bank of India (RBI) has raised interest rates 12 times in 18 months even as other leading emerging market economies such as Brazil and Indonesia have eased policy to combat the global slowdown.

Economists expect one more hike from the RBI next Tuesday, bringing the repo rate to 8.5 per cent - although they see the central bank relaxing monetary policy by the beginning of the next fiscal year, returning to 8 per cent by September.

The RBI has maintained that taming inflation is its priority even at the expense of a growth slowdown.

The Reuters consensus predicted inflation at 8.8 per cent in the year ending March 2012 before easing to 7.0 per cent the following year, both much higher than the 8.5 per cent and 6.5 per cent forecast in July's poll.

China's economy grew 9.1 per cent year-on-year in the third quarter, its slowest pace in over two years, and Beijing is likely to wait before easing policy as it battles stubbornly high inflation.


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economy india inflation rbi economic growth top 2