However, according to the report, it is likely that this will be a story of two halves. “Subsidies and transfer payments, ahead of the general election in the second quarter of 2024, are likely to boost growth in the first half of the year. After the election, we expect investment growth to accelerate further, especially in the private sector,” Goldman Sachs said.
According to a Goldman Sachs report, India’s real GDP growth rate is expected to moderate slightly to 6.3% in 2024, compared with an estimated growth of 6.4% for 2023.
However, according to the report, it is likely that this will be a story of two halves. “Subsidies and transfer payments, ahead of the general election in the second quarter of 2024, are likely to boost growth in the first half of the year. After the election, we expect investment growth to accelerate further, especially in the private sector,” Goldman Sachs said.
“While we expect the government to continue to focus on capital spending, based on the medium-term fiscal consolidation trajectory, investment growth is likely to decline from the fiscal year,” the report said. next”. In our view, risks to the growth outlook are balanced, with the main domestic risks stemming from political uncertainty ahead of the 2Q24 elections.
Goldman Sachs said repeated supply shocks coupled with steady growth will likely keep inflation above the average level of the Reserve Bank of India’s (RBI) 4.0% target for 2019. 2024. “We expect headline CPI inflation to ease to 5.1% y/y (on average) in 2024, above the RBI and consensus forecast of 4.7% y/y,” the statement said. period, compared to an estimated 5.7% in 2023.” speak. “We hope the government will intervene through subsidies or other measures to contain food prices during the election year. While core goods inflation fell in line with our expectations in 2023, the decline in core services inflation surprised us, especially given the resilience of growth, ” he said.
Looking ahead, core inflation is expected to fall to 4.5% year-on-year (on average) in 2024, from an estimated 5.1% in 2023. Inflation is slightly high compared with the goal of limiting inflation. “We expect the RBI to cut only 50 basis points to 6.00% in early 2025. Our US economics team expects the easing cycle to begin in the fourth quarter of 2024 and forecasts The neutral interest rate is higher for the Fed, from 3.50 to 3.75%, above the base rate. the central bank’s current estimate of long-term sustainability,” he said. Goldman Sachs said the ‘higher for longer’ global scenario and high domestic inflation will mean the RBI continues to maintain a hawkish stance and tighten liquidity in the banking system until the Commission The Monetary Policy Committee (MPC) is confident that inflation is in line with the 4.0% target. . . Rising oil prices, slowing growth among trading partners and steady domestic growth are expected to widen the current account deficit by 60 basis points to 1.9% of GDP in 2024.
“In our view, although services exports have peaked (as a percentage of GDP), they will continue to offset large goods trade deficits in 2024. Foreign investment inflows due to India’s inclusion in a global bond index will help fund the current account deficit, Goldman Sachs said.
“Over the past two years, Indian policymakers have deftly managed a difficult combination of supply shocks for many commodities (food and oil) and federal funds rates,” the report said. high state”. They achieve this through a combination of monetary tightening, fiscal policy to cushion some supply shocks, and judicious use of foreign exchange reserves to maintain a stable currency.
Macroeconomic resilience in recent years has contributed to India’s inclusion in the JPM GBI-EM Global Diversified Index (starting June 2024) and could attract passive capital flows about 25-30 billion USD during the expansion phase.
“With India benefiting from regional supply chain diversification, we expect direct investment flows to continue, although flows are likely to remain weak globally in an interest rate environment. low interest rates and high interest rates. Overall, we believe the current account deficit will be comfortably funded next year,” Goldman Sachs said.
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