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ADB trims India's GDP growth forecast to 5.1% in FY20

"India's growth is now seen at a slower 5.1 per cent in fiscal year 2019-20 as the foundering of a major non-banking financial company in 2018 led to a rise in risk aversion in the financial sector and a credit crunch. Also, consumption was affected by slow job growth and rural distress aggravated by a poor harvest," Asian Development Bank said.

, ET Bureau|
Updated: Dec 11, 2019, 11.18 PM IST
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ADB said growth should pick up to 6.5 per cent in the next fiscal year with supportive policies.
NEW DELHI: The Asian Development Bank (ADB) has slashed India's GDP growth to 5.1% for FY19, down from 6.5%. The bank has also cut its FY20 forecast to 6.5%, down from 7.2%, according to a supplement in its Asian Development Outlook 2019 Update.

The downward revision comes on the back of risk aversion and a credit crunch in the economy resulting from the IL&FS crisis in August 2018. The report also cited slumping consumption due to slow job growth and rural distress aggravated by a poor harvest as factors weighing down on the Indian economy.

The report has underpinned supportive policies for its FY20 estimate.

The bank has also revised its estimates for China’s GDP growth to 6.1% this year and 5.8% next year, down from its September forecast of 6.2% and 6% for this year and the next respectively. Slowing global activity due to US-China trade tensions and weak domestic demand were the main cause of the revision, said the report.

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However, growth is expected to accelerate should the US and China reach an agreement on trade.

The slowing down of the region’s two major economies has impacted the growth of the developing Asia region, with the ADB trimming its growth forecast to 5.2% for both 2019 and 2020 for the region, down from its earlier estimates of 5.4% this year and 5.5% for the next year.

“While growth rates are still solid in developing Asia, persistent trade tensions have taken a toll on the region and are still the biggest risk to the longer-term economic outlook. Domestic investment is also weakening in many countries, as business sentiment has declined,” said ADB Chief Economist, Yasuyuki Sawada.

Rising food inflation in both these economies has also impacted the ADB’s inflation forecast for the region, causing an upward revision to 2.8% this year and 3.1% for the next year, from its September estimate of 2.7% for both the years.

“Inflation, on the other hand, is ticking up on the back of higher food prices, as African swine fever has raised pork prices significantly,” Sawada said.

Other factors affecting the region’s growth are the continued political crisis in Hong Kong. The Hong Kong is already in a technical recession with the economy expected to contract 1.3% this year and grow at 0.3% next year, according to the report.

Declining exports and weaker investments in Singapore and Thailand have also adversely impacted the regions growth.

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