India to be an outlier in the global economy: Report

MUMBAI: The Reserve Bank may resume easing of rates from the April-June'20 quarter to address growth concerns as the current inflationary pressures are transient, according to Japan-based financial services major Nomura, it also expects fiscal policy to play a bigger role in reviving growth. India could be an outlier among major some emerging market and advanced economies to rebound from a tepid growth in 2019.
Nomura expects that growth in major global economies may weaken in 2020, like US growth may slip from 2.3% to 1.8%, China (6.1% to 5.7%), the euro area (1.2% to 0.9%) and Japan (1.0% to 0.2%). This will be offset by a handful of smaller EMs – Brazil, Mexico, India, Turkey and South Africa – rebounding from tepid growth in 2019, Nomura said in its Global 2020 outlook and hence expect world GDP growth to hold steady at 3.1% in 2020

One of the major contributing factor to the current slowdown in 2019 is the crisis in the NBFC sector, according to Nomura. “Domestic credit conditions remain tight as market concerns in the shadow banking sector have persisted for too long, in our opinion” said Sonal Varma, chief India and Asia (ex Japan) economist at Nomura “ Hence, we believe India's growth is set to slow further in Q4, delaying the recovery expected by consensus” Nomura has projected that the GDP growth will surprise consensus on the downside again in 2020 at 5.5% compared to the consensus forecast of 6.3%.

It notes that India’s GDP growth slipped from 5.8 per cent in the January-March’19 to 4.5% in the July-September quarter same year after the crisis in the NBFC sector broke out in September’18. “ Contrary to the market’s current optimism that growth has likely bottomed “ we believe growth will slide further to 4.3% in Q4, and stage a weak uptick to 4.7% in Q1 2020”.

It expects inflation to continue at the higher growth trajectory for some more time and overshoot the RBI’s 4% target owing to high food price inflation and other supply-side shocks. “We see this as a transitory phenomenon. The Reserve Bank of India (RBI) is likely to ease again in Q2 2020, however the burden of growth heavy lifting now seems to be shifting to fiscal policies” said a Nomura report.

Inflation globally is expected to remain subdued, notably in the big advanced economies, such that the Fed, ECB and BOJ will not raise policy rates in 2020 or in 2021