(Bloomberg) -- Goldman Sachs Group Inc. expects Indian businesses to boost investment, the central bank to cut interest rates and inflation to remain elevated after elections next year.
While macro-economic resilience will continue, 2024 “will likely be a tale of two halves,” economist Santanu Sengupta said Monday during the release of the India Outlook report for next year. Government spending will likely be the growth driver ahead of polls, but post-elections, “we expect investment growth to re-accelerate, especially from the private side,” he said.
Construction and real estate may trigger the start of private sector capital expenditure, followed by manufacturing companies after firms reduced their debt in the recent past, Sengupta said.
A pick up in private sector growth will bode well for the Indian economy, which is among the fastest-growing emerging economies in the world. In the last few years, government spending and higher consumption have supported expansion in Asia's third-largest economy. Private investment as a share of GDP moderated from about 35.6% in July-September 2011 to 29.3% in April-June this year, according to data from the statistics ministry.
While growth is expected to remain steady at 6.3% for next year, from 6.4% in 2023, higher inflation may keep the central bank from reducing interest rates quickly. The scope of easing for the central bank could be limited as repeated supply shocks may keep inflation at an average of 5.1% in 2024, above the Reserve Bank of India's 4% aim, Sengupta said.
Goldman expects the central bank to cut borrowing costs by 25 basis points each in October-December 2024 and in the first quarter of 2025. In comparison, analysts in a Bloomberg survey expect the central bank to lower rates by 50 basis points in July-September next year.
Higher inflation may prevent the monetary authority to make deeper cuts, but the RBI will likely lower borrowing costs by improving banking system liquidity, Sengupta said.
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