India: GDP growth has downshifted – Wells Fargo

Real GDP growth in India downshifted from a year-over-year rate of 7.0 percent in Q4 2016 to 6.1 percent in Q1 2017, as noted by the analysts at Wells Fargo.

Key Quotes

“Following the demonetization measures in November, currency in circulation has rebounded over the past few months, and monthly indicators have shown recovery as well. For example, sales of motor scooters nosedived more than 25 percent between Q3 2016 and Q4, but they have subsequently rebounded to their run rate immediately preceding de-monetization.”

“The Indian economy has slowed on trend over the past year or so. The economy is not coming off the rails, nor, however, is it growing at the breakneck pace that characterized the years immediately preceding the global financial crisis. We look for real GDP in India to grow roughly 7 percent or so per annum through 2018.”

“The rate of CPI inflation in India has slowed to only 3.0 percent. This downshift in inflationary pressures may be consistent with slower economic growth, but it largely reflects deceleration in food prices. We look for some uptick in the overall rate of CPI inflation later this year and in 2018 as food prices pick up. That said, unless economic growth in India strengthens appreciatively, the rate of consumer price inflation in India should largely remain benign through 2018.”