UBS revises FY24 GDP growth forecast up by 70 bps to 6.2 pc

Citing a better-than-expected global growth outlook, lower global crude oil prices and strong services exports, a foreign brokerage firm revised its growth forecast for India upward by 70 basis points to 6.2 percent for the current budget.

The in-house economists at Swiss brokerage UBS have already revised global growth forecasts upward by about 50 basis points to 2.6 per cent in 2023, led by China’s early reopening, resilient European data and a revision of US growth figures.

The domestic economy declined by 7.2 percent in FY23, 20 basis points more than previously forecast.

On FY23 GDP growth of 7.2 percent, UBS Securities India chief economist Tanvi Gupta Jain said the same was driven by much higher-than-expected growth in the fourth quarter, which came in at 6.1 percent.

The consensus forecast is 6 percent growth in FY24 while the Reserve Bank holds it at 6.5 percent.

There are upside risks to the country’s growth outlook on better-than-expected global growth prospects, lower global oil prices and strong services exports. This made us revise our forecast for real GDP growth for FY24 by up 70 basis points to 6.2 percent, Gupta Jain said in a note on Thursday.

On the crude oil front, it expects it to average $75 a barrel in FY24 if the country imports 25 percent of its oil needs from Russia — well below the previous estimate of $90 a barrel.

A 10 percent drop in average crude oil prices would push real GDP growth 20 basis points higher if fuel costs are passed on to consumers. However, the effect would be non-linear in the event of a subsequent drop in oil prices.

Another key enabler is the strong trend in the services surplus, which could support the contribution of net exports (of goods and services) to overall growth even as headwinds to global growth persist.

You see, inflation is averaging 5.1 percent even as weather-related risks remain. Its previous forecast was for an average of 5.3 percent in FY24.

This moderation is partly due to slowing domestic demand, the passage of a correction in global commodity prices, including fuel price cuts in the second half of FY24, and the lag from monetary policy to inflation; Gutpa Jain said improvements in global supply chains and bottom line impact are finally on.

On the monetary front, it maintains a base case outlook for a shallow 50 basis point mitigation cycle starting from H2. But she doesn’t think the RBI is likely to cut rates ahead of the Fed given that the interest rate differential between the repurchase rate and the Fed’s effective interest rate (currently 142 basis points) is the lowest since June 2006.