BofA expects 8.2% GDP growth for next fiscal year with more downside risks for India

Warning that the new year will be riskier than the previous two in terms of growth, inflation and the perils of the normalization of monetary policy on consumer demand in particular, as well as other external risks, a brokerage house Wall Street has forecast GDP growth of 8.2% next fiscal year, with more downside risks to the projection.

The biggest risk to the projection is derailed consumer demand which has been the main driver of growth in recent years, said inside economists at Bank of America Securities India who still believe consumer demand will also remain the main driver of growth in recent years. main driver of growth in the next fiscal year. .

These economists expect higher growth in the next fiscal year due to higher overall gross value added (GVA) growth due to lower spending on grants in the next fiscal year, as well. agricultural growth stable at around 4% and robust growth in services, which represents GVA growth of 7%, down from a likely growth of 8.5% in FY22 and GDP growth of 8.2% in FY23, compared to 9.3% in FY22.

Since GDP is GVA plus indirect taxes on goods net of subsidies, an increase in subsidies like last year results in a larger gap between GDP growth and GVA, like last year, according to his report. But that gap is expected to narrow in FY 22, as subsidies are expected to be much lower, reducing the GDP-GVA growth gap to 1.0-1.5bp in FY. fiscal 23. So with our upward GVA growth of 7 percent, we see overall GDP growth at 8.2 percent in fiscal year 23, ” the report said on Friday.

The quarterly growth path is volatile with double-digit growth in Q1FY23 but very low annualized impressions in Q4, largely due to the base effects distortion. Citing inflation and the impact of monetary policy normalization on consumer demand as the main downside risks, this projection, economists said the RBI would likely raise the repo rate by 100 points. base up to FY’23, which they believe could derail the consumer demand wagon. derailed in FY’23 as an end to the accommodative monetary policy which facilitated low lending rates.

Although aggregate bank lending grew 6 percent, retail lending growth was stronger at 12 percent. As monetary policy normalization begins, lending rates are expected to rise slightly, which could dampen consumer demand, they added. Another risk is a likely poor monsoon next year, given the Southern Oscillation index is currently in La Nina mode, the report said, adding that three successive good monsoons bode well for agricultural growth and potentially rural demand. Putting the average CPI at 5.6% in FY 23, the report says rising inflation could prove to be a key macroeconomic concern for all, as global commodity prices remain high. .

As demand recovers, the impact of commodity prices on product prices, which has arguably been dampened by the slowing economy, is expected to increase. “As a result, we see the CPI gradually increasing and reaching an average of 5.6% in fiscal 23,” he said. Going forward, the CPI is expected to average 5.6% in fiscal 23 as demand recovers and global commodity prices remain high or increase further; and persistent core CPI inflation will likely exert upward pressure on headlines, even if food inflation remains largely contained, BofA said.

Noting that monetary policy is at an inflection point, BofA sees the RBI normalize the political corridor through the recall of FY22 and the 100bp repo rate hike in FY 23 – first with a 20bp hike in February 2022 and revert to a political corridor by March with a potential hike from an out-of-turn policy, assuming there is no serious third wave at the start of 2022 and to go neutral in April and raise the repo rate in June and get a 100 basis point increase during the year. On the positive side, they see the budget deficit improving to 5.8 percent of GDP for the next fiscal year, from 6.8 percent for the current fiscal year, while the current account deficit is expected to drop to 2 percent. .

They see global growth remaining strong in 2022 at 4.3% against 5.8% in 2021, led by the United States with growth of 4.4% and China is expected to experience significantly lower growth at 4%.

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