Growth cycle not durable, high inflation & current account deficit hurting growth: Nomura
- IBJ Bureau
- Dec 11, 2021
The current growth cycle being witnessed in the country was not durable and would peak by the first half of 2022, Japanese brokerage Nomura said on Friday.
Higher inflation and wider current account deficit, which were the side effects of the loose policies adopted to push growth during the pandemic, would come into play, forcing the RBI to act even as the “scarring effects cast doubt on growth’s durability”, Nomura said in its yearly outlook today.
It added that the recovery had been uneven, hurting consumption of lower-income households, and a sustained capital expenditure upcycle was also not in sight.
“Overall, we do not see the current growth cycle as durable. With mixed growth, high inflation and wider twin deficits, we expect India’s risk premium to rise and the RBI to catch up as it falls behind the curve,” Nomura analysts said.
The brokerage said that the economy grew by 2 percentage points after the damage caused by the second wave of the COVID virus in mid-2021 but remained below the pre-pandemic trend.
A further recovery had been hampered by supply-side bottlenecks, like the energy crunch and chip shortages, evidenced by the weak economic normalisation in the December quarter, but production should bounce back once these were resolved, it added.
“In our base case, India’s business cycle peaks in H1 2022, and then momentum starts to moderate in H2, reflecting cyclical factors and the impact of the scarring effects, which we believe have lowered the potential growth rate,” Nomura said.