With the Iran war ending, Wall Street brokerage Goldman Sachs has raised the country’s growth forecast for the current fiscal to 6.5%, up from 6.1% and has also lowered its inflation outlook to 4.9% from 5.1% estimated earlier.
The economy is likely to grow at 6.5% as the US-Iran deal promises peace in West Asia, Goldman Sachs said in a note, which also is positive on the prices front, saying that falling crude prices will settle prices at lower levels with retail inflation inching up to just about 4.9%.
The global brokerage had earlier expected the economy to grow at 6.1% in the current fiscal and inflation to top 5.1% (on a par with the revised RBI forecast), following the war on Iran, which led to closure of Strait of Hormuz that carries a fifth of world’s crude supplies. “Overall, Q1FY27 growth is tracking above our earlier expectations. Combined with our commodities team’s downward revision to the oil price forecast,” the agency said in its report.
The price of Indian crude basket was trading above $100 a barrel for three consecutive months and has declined to $86.31 in June and on June 24, it was priced at $70.71 a barrel.
“On balance, with the recent downward revision in the oil price forecast by our commodities team ($82 a barrel average in Q2-Q3, vs. $92 a barrel earlier and $75 average in CY27, vs $80 earlier), we raise our real GDP growth forecast for FY2828 by 0.3 bps to 6.8%,” Goldman Sachs noted.
FY27 would mark the first year post pandemic when the economy is set to grow less than 7%. The economy logged 7.7% growth in FY27 on the back of higher consumption and investment.
Goldman also has a brighter outlook for consumer prices as it lowered the inflation estimate to 4.9% from 5.1% estimated earlier.
“The sharp correction in global urea price should reduce upside risk to the fertiliser subsidy bill vs our earlier expectations. Recent import tenders have cleared well below the highs seen during the peak of the Middle East shock, and together with lower oil prices, should help ease near-term fiscal pressures,” it said.
But it warned of near-term weather related uncertainties to impact demand, saying, “in the near-term, weather-related uncertainties and the forecasts of heatwaves remain a headwind, particularly to rural consumption growth. Beyond Q2, we do not expect incremental drag on consumption, as we see limited need for further pump price hikes,” it said.
The brokerage still expects central bank to deliver a 50 bps rate hike in two tranches before or by December. "If the pass-through from the still elevated polymer prices to core goods inflation proves more limited than our expectation, the pickup in core goods inflation may be lesser.
“Also, if the recent correction in petrochemical prices persists then manufacturers may face less pressure to raise prices. In such a scenario, there is a risk that the RBI may defer the policy tightening cycle," it said.