India outpaces China in Q1 2018: Fastest GDP growth since demonetisation, GST, says poll; what lies ahead

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India’s economy probably gained a little momentum in the first three months of 2018 which should ensure that it remains the world’s fastest growing major economy, a Reuters poll found. Gross domestic product expanded an annual 7.3 percent in the first three months of 2018, the May 24-29 poll of 55 economists predicted, a touch faster than the 7.2 percent achieved in the last three months of 2017 — and well above China’s pace of 6.8 percent for the quarter ending in March. Forecasts ranged from 6.9 to 7.7 percent.

If the poll is right, January-March would have the fastest expansion since before the government’s surprise decision in November 2016 to scrap high-value currency notes and a botched implementation of a goods and services tax (GST) in July last year stalled growth.

Domestic dynamics are very strong and external volatility won’t derail the current economic recovery,” noted Hugo Erken at Rabobank, one of the most accurate forecasters on India GDP, and whose view is that growth reached 7.7 percent on a normal basis, well above the 7.3 percent median. On a gross value added basis, he expects growth of 7.5 percent, higher than the 7.1 percent median in a Reuters poll for that metric.

 GDP data will be released on Thursday at 1200 GMT. Economic Affairs Secretary Subhash Chandra Garg said on Monday it was expected that annual growth was between 7.3 and 7.5 percent in the March quarter. Monsoon rains hit the southern Indian state of Kerala on Tuesday, a few days earlier than normal, the country’s weather office said, a development that potentially brightens the outlook for agricultural output and the economy. After growth slowed sharply for much of 2017, India regained its status as the world’s fastest-growing major economy for the October-December quarter.

Around two-thirds of economists in the poll who answered an extra question said growth would continue at roughly the same pace through the fiscal year that began on April 1. The remaining one-third said it would pick up. That overall steady – but strong – view was supported by expectations for manufacturing activity to have slowed only slightly in May.

The poll predicted the Nikkei Manufacturing Purchasing Managers’ Index, compiled by IHS Markit, would be 51.5, a tad weaker than April’s 51.6 but still comfortably above the 50-mark that separates growth from contraction.
With growth proving robust and prices on the rise, the Reserve Bank of India may change its policy stance next week. Annual retail and wholesale inflation accelerated in April, mainly due to higher fuel and food prices.

In response, some economists changed their views to expect a more hawkish central bank at its June policy meeting. “The RBI will hold steady next month – the Bank will likely want to wait for further clarity on the monsoon outturn and the increase in minimum support prices (MSP) for summer crops,” noted Charu Chanana at Continuum Economics. “A change in stance from neutral to ‘withdrawal of accommodation’ remains likely at the June 4-6 meeting.”

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