The cash crunch is taking a bite off Indian growth.
Goldman Sachs took another axe to its growth forecasts for India on Tuesday, as the tremors from the government’s shocking move to ban high-value banknotes reverberate across financial markets and the real economy.
Economists at the US-based bank, led by Nupur Gupta, cut their estimates for inflation-adjusted output for the fourth quarter of 2016, citing a sharper-than-initially-estimated fall in consumer sentiment and industrial production amid the demonetization drive.
They now reckon Asia’s third-largest economy will expand by a paltry 4.0 per cent in the quarter, compared with a median estimate of 6.5 per cent from a Bloomberg survey of 12 economists published in late-November. The latter projection, though higher than Goldman’s, is also notably weaker than a previous 7.8 per cent estimate.
Goldman on Tuesday also further downgraded its outlook for the 2017 fiscal year, estimating the economy will expand by 6.3 per cent year-on-year, compared with a Bloomberg median estimate of 7.3 per cent. Just two weeks ago, the Goldman economists cut their 2017 GDP-growth projection by 1 percentage point to 6.8 per cent, citing the potential for business disruptions in light of the liquidity shortage.
The economists’ bearish lurch this week reflects the fact that soft data and anecdotal evidence suggest the cash shortage is beginning to take a toll, a challenge that will weigh on the Reserve Bank of India on Wednesday when it meets to decide its crunch-fighting strategy.