Credit Suisse cuts nominal growth forecast

Mumbai: Citing the impact of the second wave of the pandemic over the economy and consumer sentiment, Swiss brokerage Credit Suisse has lowered its nominal GDP growth forecast by 150-300 bps to 13-14 per cent, but expects a stronger recovery in the second half as it sees the lockdowns having limited impact on tax collections.

Last month, Neelkanth Mishra, the co-head of equity strategy for Credit Suisse Asia Pacific, and India equity strategist, had told PTI that he expected the real GDP to fall to 8.5-9 per cent in FY22 due to the more severe pandemic attack.

“Our macro strategy team expects the overall impact on the pandemic restrictions on GDP to be about 150 bps in base case scenario. Even if we assume a 300 bps impact if statewide restrictions prolonged, nominal GDP growth in FY22 can still be around 13-14 per cent,” Jitendra Gohil and Premal Kamdar, equity analysts at Credit Suisse Wealth Management India said in a note on Thursday.

Their optimism is based mostly on limited impact on tax collection and other revenue avenues of government, driven by good recovery in H2, albeit lower than what had anticipated before the second wave, and and pent-up demand.

Recovery will be supported by pent-up demand, albeit lower than in the case of the first wave, and the rub-off impact of global growth as the developed market could see faster growth supported by vaccination drive, they said.

Though the localized lockdowns are going to hurt the easy movement of goods, and supply chain bottlenecks will delay recovery in the manufacturing sector, we see pent-up demand supporting growth from the second half. But the fact that the virus is now spreading in the rural areas is a concern.

Another positive factor is the good monsoon forecast and, if this materialises, this will the third consecutive good monsoon season. This bodes well for the agriculture economy, and will help revive rural demand faster, they said.

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