DBS raises GDP forecast for FY19 to 7.4% on higher consumption, spending

Global financial services firm DBS has raised the real GDP forecast for the current financial year to 7.4 per cent as against 6.7 per cent in last financial year, driven by consumption and higher public spending, says a report.

"The economy has recovered since the transitory shocks of demonetisation and GST rollout," DBS said in a research note adding that consumption both urban and non-farm and higher public spending is expected to lift growth.

The report noted that the remonetisation process is complete and "currency with the public has not only returned to pre-demonetisation levels but also surpassed trend growth."

According to the report, while private consumption is likely to benefit from better urban and non-farm spending, the agricultural sector will have to deal with easing real wage growth, falling crop prices and weak terms of trade.

As per the report base effects will prop up growth numbers in the first half of this financial year, but in the second half GDP numbers are expected to taper off.

"The FY19 growth trajectory should be viewed in two halves strong first half before momentum tapers. We revise up our real GDP estimate to 7.4 per cent from 7.2 per cent previously," DBS said.

In the January-March quarter, India's gross domestic product (GDP) grew at the fastest pace in seven quarters at 7.7 per cent on robust performance by manufacturing and service sectors as well as good farm output.

The report, however, cautioned that while a cheaper currency is expected to benefit exports, a challenging global demand outlook and simmering trade disputes might outweigh any boost to growth.

Besides, imports will be led by higher oil purchases and strong demand for capital and consumer goods (electronics), it added.