Nomura report predicts continued economic slowdown in Q1 of 2017 post demonetisation

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The Indian economy is expected to continue its slowdown into Q1 (January-March) of 2017, even as the economy made a meagre recovery in January 2017.

According to a Nomura report, the economy witnessed a slowdown in the fourth quarter (October-December) of 2016, growing at 6% – down 1.3% from Q3 (July-September) of 2016. Growth figures for Q3 stood at 7.2%.

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Credit firms and market experts attribute the slowdown to the government’s recent demonetisation move that resulted in almost 85% of the country’s currency in circulation being banned. The move to abrogate the legality of Rs.500 and Rs.1000 denomination notes saw several small and medium scale businesses, particularly in Rural India, take a massive hit.

Although expected growth figures for 2017 are quite impressive, the economy isn’t witnessing broad based growth, especially after economic activity in the country post demonetisation dropped substantially. This is definitely a concern, as growth numbers do not reflect healthy economic activity in Cottage, Small and Medium Enterprises.

The Nomura report particularly cites subdued economic activity and growth numbers for the month of December, in the immediate aftermath of the government’s demonetisation move. However, economic activity is soon pegged to see a steady increase as the country is witnessing decent progress in its remonetisation process, with normalcy expected to be restored by the end of March.

Currency circulation, a crucial parameter that has impacted growth, stood at 7.2% of GDP for January 2017, an increase from 5.9% of GDP as on January 1st, 2017. The economy is projected to grow at 7.5% in the second half of 2017 and the overall growth rate for 2017 is expected to be at 7.2%. Earlier, following the demonetisation move, the IMF scaled down its growth projections for the Indian economy to 6.6%, down a full percentage point from 7.6% for fiscal 2016-2017.

The IMF also stated that India might lose its tag of being the Fastest Growing Economy in the World after growth forecasts were scaled down post economic activity being negatively impacted by demonetisation.

 

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