Growths set to slow down to 6-6.5% in H1 of 19: Nomura

Mumbai: Despite the almost lose fiscal and monetary policies, the economy is likely to slow down to 6-6.5 percent in the first half of 2019, due to weak global demand, political uncertainty and tighter financial conditions, says brokerage report.

The Reserve Bank under the new governor had last week projected a GDP growth of 7.4 percent for 2019-20--7.2-7.4 percent in first half, and 7.5 percent in the second half.

"Consistent with our index, we expect GDP growth to slow from 7.1 percent year-on-year in the third quarter of 2018 to 6.6 percent in the fourth quarter and further to 6-6.5 percent in the first half of 2019," Japanese brokerage Nomura said in a report Tuesday.

Citing the fall in the Nomura composite leading index fell to 99.9 in Q1 of 2019 from 100.1 in Q4 of 2018, indicating the business cycle is headed lower, at least into the first half of 2019, the report said.

"Fiscal and monetary policies are turning expansionary but are unlikely to change the near-term trajectory," the report added.

The monetary and fiscal policies have shifted to easing mode, although it remains cautious on their near-term impact, it said.

"On fiscal policy, while we compute the fiscal impulse of the budget at 0.36 percent of GDP, we foresee implementation challenges ahead of the government's 'farm charm' package," it said.

On monetary policy, the RBI reaffirmed its focus towards headline inflation and its willingness to support growth, which suggests the February policy cut was not a 'one and done', it said.

"With its inflation projection remaining below the 4 percent target through 2019, and our assessment that growth will disappoint the RBI, we expect another rate cut in Q2 (very likely in the April review)," it said.

As the previous divergence between exceptionally low food and elevated core inflation closes, the report does not assess the need for a deeper rate cut cycle. It sees a 20 percent probability to a third rate cut in the third quarter.