New Delhi, Sept 3:
Goldman Sachs has lowered India’s growth forecast for
the current financial year to 4 per cent from 6 per cent earlier and is
expecting the rupee to touch 72 against the US dollar in the next 6
months.
According to the global brokerage firm, India
and most of the Southeast Asian countries are likely to see “difficult
external funding conditions” as markets are anticipating US Fed tapering
and eventual exit from unconventional monetary policies.
“For
India, we have cut our FY’14 GDP growth forecast to 4.0 per cent, from
6.0 per cent earlier, and our FY’15 forecast to 5.4 per cent, from 6.8
per cent previously,” Goldman Sachs said in a research note.
In
the near term, Goldman Sachs sees risks as the economy is likely to
need an adjustment in the current account and fiscal balances, and says
it “may require below-potential growth for several more quarters to
reduce inflation, before we can see an economic recovery“.
The
report further added that not only has data come in worse-than-expected
in Q2 2013, the external funding pressure since early May was the major
driving factor behind the GDP downgrade.
According
to official figures, the country’s economic growth in the April-June
quarter slid to 4.4 per cent, the lowest in the past several years,
pulled down by drop in mining and manufacturing output.
Goldman Sachs has lowered its growth forecasts for India followed by Indonesia, Thailand and Malaysia, it said.
Meanwhile,
the global broking major has also lowered its rupee forecast, and sees
further real depreciation over 3 to 6 months given the challenging
external funding environment and the slowdown in GDP growth.
“We change our 3, 6, and 12-month USD/INR forecasts to 70, 72, and 70 (from 60 flat) respectively,” the report said.
The
rupee had touched an all-time intra-day low of 68.85 to a dollar on
August 28 and is currently hovering around the 67/USD mark in highly
volatile trade.
“We see further real depreciation
over 3 and 6 months given the challenging external funding environment
and the slowdown in GDP growth. Over 12 months, we expect some
stabilisation, with the removal of election uncertainty in March-April
likely to help sentiment, and adjustment in the current account in
progress,” Goldman Sachs said.
Notwithstanding the
fact that the global brokerage has downgraded its India forecast
significantly, it remains optimistic about its long-term potential.
“We
continue to believe that a rising middle class, favourable
demographics, need for investments, especially on infrastructure, and
productivity catch-up across a broad swathe of sectors can drive growth
over the medium term,” it said.