Nomura ups India's 2022 GDP forecast to 7.7%
Published On: Friday, June 11, 2021 | By: Team KnowMyStock
Nomura has raised India’s gross domestic product (GDP) forecast for 2022 by 0.7 percentage points (pp) to 7.7 percent in spite of the second wave of Covid infections that brought the economic activity in most cities to a standstill in the past few months. The research and brokerage house has 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 percent and 1.3 percent of GDP, respectively (from 1.1 percent and 0.8 percent), and CPI inflation to 5 percent and 5.3 percent (from 4.9 percent in both years). We also pencil-in an additional 25bp repo rate hike in Q3 2022,” according to a note of Nomura. The first flush of growth indicators for May, according to Nomura, suggest a significant hit to consumption and services, with the manufacturing and export sectors being more resilient. The overall impact, Varma and Nandi 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.
“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 (q-o-q) in Q2, much smaller than during the first wave (-24.7 per cent). Beyond Q2, 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. This, however, is in stark contrast to those at Jefferies, who expect just 32 per cent of Indian citizens to be fully vaccinated by the end of the year.
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," they said.
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