HYDERABAD: The slack in demand and investment is likely to drag material economic recovery to the next financial year, according to Dr Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.
“GDP growth plunged to 20-quarter low to 5.8% in Q4, FY19. With this, the full-year FY19 GDP growth rate comes to 6.8% (five-year-low) compared to 7.2% in FY18. The overall GDP growth is expected to be below 5% in FY20 and any material recovery will be postponed to FY21,” he said.
Speaking at the two-day IASCC-XLRI Conclave here Tuesday, Ghosh said going forward, growth prospects were tilted towards the negative side unless a course correction happens.
This sentiment was reinforced despite the July budget and subsequent policy announcements. The financial sector fragility, notably in the real estate exposed NBFC sector, has increased the perception of downside risk.
“The financial and corporate sector are facing the twin challenge of credibility and resilience. Sanctity of the audit process, external credit rating agencies, governance and regulatory lapses have strained the outlook of both banking and corporate sector including the relationship between the two. This trend is not healthy for both as it prevents retail and FII participation in the Indian capital markets or even FDI,” he noted.
Meanwhile, there’s considerable uncertainty if the weakness is temporary or the beginning of a recession in advanced economies. While the US raised tariffs on certain Chinese imports with the latter retaliating, additional escalation was averted followed the June G20 summit.
“Against this backdrop, global growth was forecast at 3.2 per cent in beginning 2019, picking up to 3.5 per cent in 2020. GDP reading so far this year, together with generally softening inflation in many economies, point to weaker-than-anticipated global activity,” he observed.
Given the synchronised slowdown, the World Bank yet again downgraded FY19 growth to 3 per cent — its slowest pace since the global financial crisis. Importantly, the projected growth pickup in 2020 is also precarious, presuming stabilisation in currently stressed emerging market and developing economies, Ghosh said.
He said the contemporary issue for macroeconomists is to focus on assuring adequate aggregate demand. It’s incorrect for central bankers to suggest that they have this challenge under control, or that with their current toolkit they will be able to get it under control.