India’s economy expanded by just 5.4 per cent in its second fiscal quarter ending September, well below estimates by economists and close to a two-year low, reports CNBC.
Economists polled by Reuters had forecast growth of 6.5pc for the period, while the Reserve Bank of India expected an expansion of 7pc.
The country’s statistics agency noted sluggish growth in manufacturing and the mining sector.
The yield on the country’s 10-year sovereign bond quickly sank to 6.74pc after the release, from around 6.8pc.
The weak GDP reading could potentially affect the country’s interest rate trajectory, with the RBI’s Monetary Policy Committee scheduled to meet between next Friday and December 8. Markets watchers had been expecting an eleventh consecutive pause by the RBI, with the repo rate currently at 6.5pc.
Harry Chambers, an assistant economist at Capital Economics, said the Friday reading showed that weakness was “broad based.” His firm expects economic activity “to struggle over the coming quarters.”
“That bolsters the case for policy loosening, but the recent jump in inflation means the RBI won’t feel comfortable cutting interest rates for a few more months yet,” he said in research note.
Speaking to CNBC ‘Squawk Box Asia’ before the GDP release, Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis, forecast that India’s economy will slow but not “collapse” in 2025.
She said that Natixis has a 2025 growth forecast of 6.4pc for India - without clarifying whether this refers to the fiscal or calendar year.
Meanwhile, India hopes that the incoming administration of US President-elect Donald Trump could help keep global crude oil prices low, which would reduce the South Asian country’s import bill and support its faltering economic growth.
Analysts including those at Citi Bank predict that President Trump’s second term could put downward pressure on oil prices through 2025, driven by potential trade tariffs and increased oil supply.
“We believe one of the possible benefits of the new US administration taking office in 2025 will be continued low energy prices,” said V Anantha Nageswaran, India’s chief economic adviser, at a Press conference yesterday following the release of quarterly GDP data.
He added that low crude oil prices would be a “very important ingredient” for India’s growth prospects, while higher prices could hinder growth.
Officials view low global crude oil prices as a positive factor, however, given India’s reliance on oil imports for over 80pc of its energy needs.
Crude oil imports make up nearly a third of India’s total annual merchandise imports.
As the world’s third-largest oil importer, India would benefit from lower oil prices.
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