DBS lowers GDP forecast for FY15 on slower economic recovery

Singaporean lender DBS has revised down its 2014-15 GDP growth forecast for India on slower investment and manufacturing, but said the country is entering a 'sweet spot' over the next two or three years to lift the potential growth rate back to 7 per cent.

According to the global financial services major, while the recovery process is proceeding, there has been slower progress in terms of investments and manufacturing in the first half of the current financial year.

"Slower investment and manufacturing is expected to impact second half performance as well, which accompanied by lower government spending and weaker net exports, put our FY15 and FY16 forecast at risk," DBS said in a research note.

GDP growth in the second quarter of this fiscal slowed marginally to 5.3 per cent, lower than the 5.7 per cent target in first quarter.

"With first half GDP growth slower than our base case and dampening forces in the second half, we temper our FY15 GDP estimate to 5.6 per cent from 6.1 per cent previously," DBS said in a research note, adding that for FY16, there is likely to be a slight acceleration to 6.1 per cent.

The decline in second quarter GDP is mainly on account of subdued performance of agriculture sector as its growth rate slipped to 3.2 per cent in second quarter from 5 per cent in the corresponding period last fiscal.

Similarly, manufacturing sector growth rate declined to 0.1 per cent during July-September quarter from 1.3 per cent a year ago.

DBS has revised FY16 GDP forecast to 6.1 per cent from 6.5 per cent previously.

The report, however, said that nonetheless, the economy is in the cusp of a cyclical recovery, with a structural boost over the next two or three years to lift potential growth back to 7 per cent.

On inflation, the report said it will ease towards 6 per cent in FY16, closer to the Reserve Bank of India's target.

October CPI inflation slowed to 5.5 per cent on a year-on-year basis and is likely to slip below 5 per cent in November. "Passage of base effects thereafter will lift inflation back towards 6 per cent after December before settling within 5.5 per cent to 6.5 per cent into next year," the report added.