Moody’s predict over 3% GDP growth of G20 countries and warns of geopolitical risks

In its latest report, Moody’s Investors Services forecast the G20 economic growth at over 3% for the current and the next year. In addition, it also warns of geopolitical risks, US protectionism and spill overs from monetary tightening and China’s deleveraging measures.

The ratings agency clarified that strong data in the first two quarters of the year prompted it to raise 2017 growth forecasts for China to 6.8 % from 6.6%; for South Korea to 2.8% from 2.5%; and for Japan to 1.5% from 1.1%.

In tandem, the agency expects acceleration in the Euro zone through the year based on strong sentiment indicators and has hence revised its forecasts to upwards for economies like Germany, France, and Italy.

However, the agency cut its forecast for the United States to 2.2% in 2017 and 2.3% in 2018, citing its weak first half performance and expectations of more modest fiscal incentive than earlier assumed.

According to the Reuters, the report stated, “The balance of risks is more favourable than it was at the beginning of the year. However, we note event risks related to conflicts in the Korean Peninsula, the South China Sea, and the Middle East. The test firing of missiles by North Korea, intensification of aggressive rhetoric on both sides, and a hard-line stance from the Trump administration have raised the risk of a conflict in the Korean Peninsula.”

While labelling the wide-ranging measures of the Donald Trump administration to address bilateral trade issues as unfair trade practices, which could hurt the superpower’s growth, Moody’s warned China of its growing debt and lowered China’s ratings by one notch to A1 in May, saying the financial strength of the economy would erode in approaching years.

While forecasting for India, the agency slightly lowered the rate to 7.1% because of the government’s demonetization policy last year which led to several months of acute shortages for manufacturing and construction firms in particular; although it said it expects the impact to ease in coming months.

Sources: Reuters, The Hindu Business Line

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Economic Survey fixes 7- 7.5 per cent growth rate for India in 2016-17

Union Finance Minister Arun Jaitley on Friday tabled the Economic Survey for 2015-16 in the Parliament and has set India’s growth rate for the fiscal year 2016-17 at 7- 7.5 per cent. This figure is expected to accelerate to a substantial eight per cent in a few years.

The survey, authored by Chief Economic Advisor Arvind Subramanian would be the basis for Jaitley’s general budget, which will be presented on February 29.

The Survey called India as a haven of stability amidst gloomy international economy conditions and said that the restructuring of government expenditure towards public infrastructure has helped India’s economic growth to be amongst the highest in the world.

Despite the weak global economy and lower than projected GDP during 2015-16, the fiscal deficit target of 3.9 per cent of GDP looks achievable, said the Survey. However, it has projected 2016-17 as challenging in terms of fiscal deficits.

The Survey has estimated the retail inflation to be around 4.5 – 5 per cent for 2016-17.

Further, it has warned that the economic growth would suffer if the world economy remains weak and that the challenging external conditions could affect the economic policies of the country.

The return of normal monsoon and implementation of the 7th Pay Commission resulting in higher expenditure by government officials are  two important factors as pointed out by the Survey that could boost consumption in the country.

In the wake of falling value of rupee, the Survey says that fair value could be achieved through monetary relaxation and that gradual depreciation can be allowed if there is a weak capital inflow.

In the case of taxes, the survey has proposed expansion of the tax net from 5.5 per cent of earning individuals to more than 20 per cent. The Survey has also recommended review and slow elimination of tax exemptions.

According to the Survey, the corporate, industrial and infrastructure sectors have performed well owing to the recent reforms and the service sector, with a growth of 9.2 per cent in 2015-16 is seen as one of key drivers of growth. It has also stressed on more investments in the areas of education, health and agriculture.

Coming to the banking and corporate sector, the estimated capital requirement for banks by 2018-19 is expected to be around 1.8 trillion.

Also, stating twin-balance sheet problem — damaged financial positions of the public sector banks and some other corporate houses, as the most critical short term challenges confronting the economy, the Survey said that it is acting as one of the major hindrances to private investments and a full fledged economic recovery.

It has also expressed concerns regarding delay in passing the Goods and Services Tax (GST) bill which is still stuck in Rajya Sabha.

Sources: The Indian ExpressThe Times of India

India GDP grows 7.3% in October-December quarter

India’s Gross Domestic Product (GDP) expanded by 7.3 per cent in the October-December quarter for the previous year, in line with market expectations. The Indian economy is expected to expand an annualised 7.6 per cent in the 2016 fiscal.

There was a slight uptick in growth in nominal terms, i.e. to 9.2 per cent in the third quarter led by an upward inflationary movement. This against 6.4 per cent in the previous quarter.

The growth in the gross domestic product was led by double digit expansion in the manufacturing and service sector segments. Manufacturing segment posted a growth of 12.6 per cent, the highest in the current fiscal, and is estimated to expand by 9.5 per cent in the current fiscal. This is a substantial improvement from 5.5 per cent in 2014-15.

Affected by drought, the agricultural segment posted a 0.1 per cent deflation in the quarter ending December.

The gross fixed capital formation, has seen a slight decline in the third quarter, falling to a 27.8 per cent as against 30.9% and 30.5% in the previous two quarters respectively.

The private consumption slipped marginally to 59.5 per cent, compared to 59.6 per cent in the previous quarter. Economists expect that the consumption will drive the growth in 2016-17 especially when the 7th pay commission wage proposals take effect.

SOURCES: FirstPostBusiness Standard

RBI Governor, Raghuram Rajan questions new GDP formula

Reserve Bank Governor Raghuram Rajan expressed the dire need for a better methodology to calculate growth in terms of gross domestic product (GDP) for the country. He added that there exists need for better computation of numbers to avoid overlaps and capture the net gains to the economy, he said.

While talking about the growth he said that we need to be careful since there are problems with the way GDP is being counted.

As per the new formula that calculates growth based on the market prices, India is the fastest growing major economy in the world. Confirming this report, the critics say that the reason behind the strong headline growth is the change in statistical methods that seek to capture more evidence of economic activity. Analysts also suggest that subsidiary parameters such as bank credit growth, jobs and consumer demand have a very little effect on the economy.

Dr Rajan in his speech to the students of Indria Gandhi Institute of Development Research said, “”We have to be a little careful about how we count GDP because sometimes we get growth because of people moving into different areas. It is important that when they move into newer areas, they are doing something which is adding value.”

Concluding this he further added that when we lose something, we gain something but let us be careful about what is the net, how we count that.


World Bank Cuts Global Growth Forecasts for the fifth straight year

The World Bank has lowered its economic growth forecast for the fifth straight year.  According to the Washington-based development bank, the weak performance of major rising market economies will compress activity overall, along with the feeble showings from developed countries such as the United States.

The bank has lowered its forecast for 2016 growth to 2.9 percent, from a 3.3 percent projection in June, 2015.  According to the World Bank’s bi-annual Global Economic Prospects report, considering the size and global economic amalgamation of the leading emerging markets like Brazil, the Russian Federation, India, China, and South Africa, or the so-called BRICS, the simultaneous brake underway in all but one of them could have considerable spillovers to the rest of the world.

The World Bank has also raised particular concern about the declining performance of top emerging economies of the world. It also forecasts that, the Russian and Brazilian economies would continue to contract in 2016, rather than revisit growth as it had projected in June.

In Russia, the real gross domestic product could shrink at a 0.7 per cent annual pace in 2016, whereas in June, it had forecast 0.7 percent GDP growth for this year.

The South African economy is expected to grow at a modestly faster rate in 2016 as compared to last year, but substantially slower than the growth forecast in June.

India was the only one economy expected to see a notable progress in economic performance from 2015. But even there, the bank pinched its 2016 estimate by 0.1 per cent from its earlier forecast.

The bank also trimmed its outlook for the United States and other developed economies like the euro zone.


Sources: ReutersBloomberg

Budget 2015: India will race towards a real GDP Growth of 7.4 per cent, Jaitley

Finally, the much anticipated Union Budget 2015 has been released by Finance Minister Arun Jaitley. This budget had been termed by the media to be a make or break budget for the Modi government. However, according to analyst Paranjoy Guha Thakurta, the Modi government has unveiled a business friendly budget intended to attract investments for the economy. The budget focuses on many aspects of poverty alleviation, social development and provision of schemes directed towards poorer sections of the society. Jaitley began the budget session by stating that “the Credibility of Indian economy has been re-established. The world is predicting it is India’s time to fly.” He also asserted that “We have turned around the economy.”

Jaitley announced a two per cent cess on services for Swachch Bharat and a 100 per cent deduction for contribution to Swachch Bharat and Clean Ganga schemes. Service Tax rates have been increased to 14 per cent and corporate tax has been slashed from 30 per cent to 25 per cent. This is a sign of relief for corporates. The General Anti-Avoidance Rules or GAAR has been deferred by two years. The government will target a fiscal deficit target of 3.9 per cent for this financial year starting 1st April 2015. According to the finance minister, real GDP growth is expected to be 7.4 per cent. This will make India the fastest growing economy in the world. The Indian economy is expected to grow between 8-8.5 per cent in the coming financial year.

Courtesy: NDTV
Courtesy: NDTV

S&P ups India’s GDP forecast to 7.9% for 2015-16; calls it a ‘bright spot’

Standard and Poor’s, international rating agency, has revised India’s growth estimate upwards to 7.9% for 2015-16 and 8.2% for 2016-17.  It has credited this growth rate to rising investments and fall in oil prices.

“India should be the Asia-Pacific region’s bright spot. We revised our growth forecasts for the country upward, reflecting new official data based on methodological improvements,” the US-based rating agency said in a statement.

Although the agency rates India among the lowest in investment grade at BBB-, the reason for the revised estimates have not been given. S&P specified its forecast in a brief note it had sent to the press. In the note, the agency said that the growth for Asia-pacific will be lower whereas India would do well.

“Weaker growth in China and Japan may be weighing on the overall sentiment, although India’s star is rising,” it said.

Through its report titled ‘Stronger US Economy and Lower Oil Prices Aren’t Boosting Asia Pacific Growth’ S&P lowered the GDP growth forecasts for China to 6.9% for 2015-16 and 6.6% for 2016, from 7.1% and 6.7% respectively. Economic data of much of Asia-Pacific region is yet to be estimated. The monetary policy makers are cutting rates and easing financial conditions and this has been seen as a clear shift in the stance taken by the central bank.

“We now expect slightly lower real GDP growth in Asia-pacific, but significantly lower inflation, higher accounts, weaker currencies and more accommodative monetary policy stances, despite our steadfast view that the US Federal Reserve will begin its long awaited rate hikes this summer,” said Paul Gruenwald, Asia-Pacific Chief chief economist at Standard & Poor’s.

Finance Minister Arun Jaitley will present the budget on February  28 which will be his first full Budget. Through it the government will bring out its growth target for the next fiscal year.

“India’s low income levels and weak fiscal and debt indicators constrain the country’s credit profile,” the rating agency said earlier. The agency added that last year’s election results have created an environment for reforms, industrial growth and political stability. It called “government effectiveness” a “neutral” credit factor.