IMF Slashes Growth Forecast for India to 9.5%

The International Monetary Fund (IMF) has slashed India’s growth forecast for 2021-22 to 9.5 per cent from 12.5 per cent earlier. The downgrade is due to the severe second-wave of Covid-19 and the resulting dent in confidence. For 2022-23, growth is expected at 8.5 per cent, which is 1.6 per cent over the previous estimate. Global growth forecast for 2021 has been kept unchanged at 6 per cent, as upward revisions in advanced economies offset the downward revisions in countries which experienced fresh waves of infections.

US durable goods orders rose by 0.8 per cent in June from a 3.2 per cent rise in May. The slowdown was most visible in transportation equipment with the sector growing merely 2.1 per cent as against 10 per cent in the same period, led by motor vehicle and parts with 0.3 per cent drop versus 2 per cent increase. Core orders registered steady growth of 0.5 per cent. Separately, US Conference Board consumer confidence index rose to 129.1 in July from 128.9 in June. Expectations of both future income and jobs improved.

Australia’s CPI rose at its fastest pace in over 13 years to 3.8 per cent in second quarter of 2021 as against 1.1 per cent in the first quarter on a YoY basis, largely owing to the base effect. The spike in prices was led by transport (10.7 per cent in Q2 from 0.4 per cent in Q1) and health (4.8 per cent in Q2 from 3 per cent in Q1) on the back of strong demand and supply side bottlenecks. Within transport, automotive fuel growth rose 6.5 per cent, becoming the biggest contributor due to recovery in global oil prices.

Markets

Bonds: Global yields closed mixed. US 10Y yield fell by 4bps (1.25 per cent) as investors await cues from the upcoming Fed policy decision. China’s 10Y yield rose by 3bps (2.91 per cent). Crude prices rose by 0.2 per cent ($75 per barrel) because of the drawdown of US inventories. India’s 10Y yield closed flat at 6.23 per cent. It is trading lower at 6.21 per cent now.

Currency: Global currencies closed mixed. DXY fell by 0.3 per cent even as US consumer confidence improved in July. The euro rose 0.3 per cent and the pound 0.5 per cent as IMF upgraded growth forecast for the Euro Area and the UK. The Indian rupee depreciated by 0.1 per cent on the back of higher oil prices. However, it is trading higher today in line with other Asian currencies.

Equity: Barring Nikkei, other global indices ended lower as investors turned their focus towards corporate earnings and Fed’s policy meet. Shanghai Comp stumbled by 2.5 per cent as regulatory concerns continued to rattle the Asian indices. Sensex too ended in the red led by weaker global cues and deep losses in pharmaceutical stocks. It is trading further lower today in line with other Asian stocks.

[Based on inputs from Bank of Baroda]