Indian economy may slowdown in the second half of the year because of a slowdown in the global economy but this will be a positive thing as some slowdown in growth is needed to support macroeconomic and financial stability, said Jahangir Aziz, head of emerging market economics at JP Morgan, in an interview with the Economic Times (ET).
“Our view is that in the second half of the year, growth is going to slow down. And although this might seem odd, some slowdown in growth is needed to support macroeconomic and financial stability,” Aziz told ET.
“As much of recent growth in India has been driven by exports, especially of services, with the global economy slowing in the second half of the year, including the US entering a modest recession, India’s growth will also slow. But macroeconomic stability should not be impaired given India’s large foreign exchange reserves and the government holding to its fiscal deficit target,” said Aziz.
Aziz pointed out that aggressive monetary tightening has not damaged consumption and investment as it could have. This signals the US Fed may need to hike interest rates more.
In India, Aziz said the “decline in inflation, because of growth slowing down in the second half of the year, will open up space for the RBI to cut rates.”
Aziz, however, added that it is unlikely to be the start of an extended easing cycle, but there may be some easing starting in the fourth quarter of the calendar year.
Talking about El Nino risk, Aziz believes India can withstand any modest impact from El Nino on food inflation, thanks to last year’s food stocks and improved food management.
“Given last year’s food stocks and improved food management, I think India is in a reasonably good position to withstand any modest impact from El Nino on food inflation,” said Aziz.
“If the shock is modest, there are enough revenue and expenditure buffers to keep to this year’s budget target and overall public sector borrowing of 10 per cent of GDP. These numbers should be achievable unless something really bad happens,” Aziz added.
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Disclaimer: This article is based on an interview done by the Economic Times. The views and recommendations given in this article are those of the expert. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Updated: 03 Jul 2023, 09:28 AM IST
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