Indian economy loses pace in Dec quarter, Ukraine clouds outlook

NEW DELHI, Feb 28 (Reuters) – India’s economy lost momentum in the final quarter of 2021, with growth slowing from previous two quarters, data showed on Monday, as fears mount that soaring costs in the wake of Russia’s invasion of Ukraine will further sap growth.

Gross domestic product rose 5.4% year-on-year in October-December, official data showed, slower than 6% forecast by economists in a Reuters poll, and far below upwardly revised 20.3% growth in the April-June quarter and 8.5% in July-September.

The growth estimate for 2021/22 fiscal year ending on March 31 was revised down to 8.9% from 9.2% seen in January as COVID-19 related curbs weighed on activity early this year.

Asia’s third largest economy was recovering from a deep recession in 2020, has been dragged down by weak consumer demand and private investments before the third wave of virus hit the country last month.

India, which meets nearly 80% of its oil needs through imports, could be hit by a widening trade deficit, weakening rupee and higher inflation after Brent crude prices shot above $105 a barrel last week, economists say.

A 10% rise in crude oil prices could shave 0.2 percentage points off India’s GDP growth, and add 0.3 to 0.4 percentage points to retail inflation, according to Nomura’s estimates.

Three waves of coronavirus infections have pounded small businesses, hitting restaurants, tourism, educational institutions and retail, and causing mass job losses.

The Reserve Bank of India (RBI), which has slashed its repo rate by a total 115 basis points since March 2020 to soften the blow, has kept rates low to support the economic recovery.

Economists, however said rising inflationary pressures could force the central bank to revise its stance.

Nomura expects the repo rate could rise by 175 to 200 basis points by March 2023.director, before moving to ICICI Securities.

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Source: Reuters