India’s GDP growth to rise to 9.1% in 2022: Goldman Sachs

Goldman Sachs predicts the continuation of government capital spending and sees nascent signs of the private corporate capital expenditure recovery, including a revival in housing investment

Goldman Sachs on November 23 forecast India’s GDP to grow to 9.1% year-on-year in 2022 from 8% in 2021, following a sharp contraction of 7% in 2020, driven by consumption.

“We expect consumption to be an important contributor to growth in 2022, as the economy fully re-opens, driven by a notable improvement in the virus situation and adequate progress on vaccination,” said Andrew Tilton, Chief Asia Pacific, Economist quoting Goldman Sachs Economic Research India 2022 Outlook.

Likewise, the international banking giant predicted the continuation of government capital spending and sees nascent signs of the private corporate capital expenditure recovery, including a revival in housing investment.

Offering its views and analysis on major economic metrics for the forthcoming year, Goldman Sachs forecast consumer price index (CPI) inflation to rise to 5.8% year-over-year (YoY) in 2022 from 5.2% in 2021, driven by a rise in core inflation as manufacturers pass on input cost increases to consumers, considering demand recovers as the economy recovers fully.

According to the Goldman Sachs report, the Reserve Bank of India (RBI) is currently in the second stage of liquidity tightening as part of its four-stage monetary policy normalization, which commenced with dovish comments from the Monetary Policy Committee (MPC) members.

Goldman Sachs expects this second stage to end with repo rate hikes. “In our view, the RBI will likely move to stage 3 [reverse repo hike] by the end of this year and start hiking repo rates from Q2 2022. We expect a cumulative 75 basis points of repo rate hikes in 2022,” said Santanu Sengupta, India, Economist at Goldman Sachs.

The study observed that the apex bank will continue to exit the extraordinary monetary accommodation which has been in force since the beginning of the pandemic.

Meanwhile, Goldman Sachs commodities strategists expect crude oil prices to be higher in 2022 on average than 2021. Due to dearer crude, the bank forecast current account deficit (CAD) to expand to $52 billion.

“However, we think the impact on the overall balance of payments surplus will be relatively muted, as we expect capital flows to remain buoyant in CY22 [calendar year], given a robust IPO pipeline and passive bond inflows with India’s likely inclusion in the JPM GBI – EM Bond Index by end-2022/early 2023,” the report noted.

Goldman Sachs said external vulnerability indicators for India are looking better when compared to the ‘taper tantrum’ episode.

Commenting on the rupee, the Economic Research India 2022 Outlook said Goldman Sachs global forex strategists view a relatively benign dollar in the medium term and observed that the carry-to-volatility in Indian rupee remains highly attractive, though the pair is unlikely to see a lot of spot appreciation with rising oil prices.

“We forecast U.S. dollar / Indian rupee 3M [three month], 6M and 12M at 74, 73 and 72 respectively [from 73, 72 and 71 previously],” said Goldman Sachs.

On job creation in the organised sector, Goldman Sachs observed a substantial pickup in 2021 led by the information technology (IT) sector. It said IT job postings in Q3, 2021 rose by 75% compared to three months pre-Covid average.

Though the Indian housing cycle has been in a slowdown since 2012, Goldman Sachs said there are signs of a turnaround, as observed by the rise in market transactions by its equity analysts.

Four key drivers, two each from the supply side and demand side are propelling the housing cycle.

Finally, the forecast expects food prices to remain contained on the back of adequate supplies and buffer stocks of key agricultural commodities and restoration of supply chains among others.

“Food inflation has remained muted in recent months driven by subdued vegetable prices and has also benefited from the high base effect of last year,” the report added.

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