German lender Deutsche Bank has joined others to jump the gun to lower growth forecast for this fiscal, following the rupee fall, and lowered its GDP outlook for the current fiscal to 5 percent, a full 100 bps, from 6 percent citing the disappointing set of macroeconomic data released last week which showed that industrial production, trade, and business sentiment have deteriorated. "We feel that a growth turnaround will take longer than we had expected earlier. The weak trend of capital goods imports suggests that the rate cut cycle has not yet managed to turn around investment sentiment," Deutsche Bank said in the note.
Deutsche's growth forecast matches the lowest forecast follows other major GDP downgrades by Macquarie and Bank of America-Merrill Lynch earlier this week which also pegged growth at around 5.3-5.5 percent. The ADB had also trimmed its forecast to 5.8 percent from 6 per cent in this calendar year early this week. However, the German lender has maintained its earlier projection of 6.5 per cent growth in FY15. It further said, the first half growth printing a very weak set of numbers which could be even under 5 per cent, and the second half showing a modest pick-up, aided by low inflation, stable external environment, and resumption of the investment cycle. “The weak trend of capital goods imports suggests that the rate cut cycle along with the various structural measures failed to turn around investment sentiment as a result labour market headwinds have surfaced and wage growth slowed,” the report noted.
However, it feels that exports will be helped by the ongoing rupee fall in the medium term, but the near term export outlook seems lackluster all over the region. Finally, fiscal impulse at the best case scenario will be neutral this year, with the authorities showing no desire to let the deficit to worsen.
