UBS Revises FY24 GDP Growth Forecast Up By 70 Basis Points To 6.2%

Citing a better-than-estimated global growth outlook, lower global crude oil prices, and robust service exports, a foreign brokerage has revised upward its India growth forecast by 70 basis points to 6.2% for the current fiscal.

House economists at Swiss brokerage UBS have already revised global growth projections upwards by nearly 50 basis points to 2.6% in 2023, led by China's early reopening, resilience in European data, and a revision in the U.S. growth numbers.

The domestic economy has clipped at 7.2% in FY23, 20 bps higher than what was forecast earlier.

On the FY23 GDP growth of 7.2%, UBS Securities India chief economist Tanvee Gupta-Jain said the same was driven by the much higher than expected Q4 growth, which printed in at 6.1%.

The consensus expectation is 6% growth in FY24, while the Reserve Bank pegs it at 6.5%.

There are upside risks to the country's growth forecast due to the better-than-estimated global growth outlook, lower global oil prices, and robust service exports. This has us revising our FY24 real GDP growth forecast higher by 70 bps to 6.2%, Gupta Jain said in a note on Thursday.

On the crude front, she expects it to average $75 a barrel in FY24 if the country imports 25% of its oil needs from Russia—much lower than the earlier estimate of $90 a barrel.

A 10% decline in average crude oil prices would push real GDP growth higher by 20 basis points if the fuel costs were passed on to consumers. However, the impact would be non-linear in the event of a subsequent fall in oil prices.

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

She also sees inflation averaging 5.1% even as weather-related risks remain. Her earlier forecast was to average 5.3% in FY24.

This moderation is partly on account of the slowing domestic demand, the pass-through of corrections in global commodity prices, including fuel price cuts in H2 FY24, lags from monetary policy to inflation, improvements in global supply chains, and lastly, the base effect, Gutpa Jain said.

On the monetary front, she maintains the base case expectation of a shallow easing cycle of 50 bps cuts to commence in H2. But she does not think the RBI is likely to cut rates before the Fed, considering the interest rate differential between the repo rate and the effective Fed fund rate (142 bps currently) is the lowest since June 2006.