(Bloomberg) — India’s economic expansion likely slowed in the October-December period, as rising borrowing costs crimp consumption that’s a key growth driver.
Gross domestic product probably rose 4.7% last quarter from a year ago, according to a median estimate of economists in a Bloomberg survey ahead of data due Tuesday at 5:30 p.m. local time. That will be the slowest quarterly performance since the 4.09% expansion in the three months ended March last year.
Economists are projecting growth of 6.9% for the fiscal year from April 2022 to March 2023 — a tad below the government’s prior 7% estimate and slightly higher than the International Monetary Fund’s 6.8% projection.
“There are signs that higher interest rates are feeding through to the real economy,” said Shilan Shah, a senior economist at Capital Economics in Singapore, citing falling passenger vehicle sales and slowing retail transactions. “This suggests that consumption has weakened a touch.”
Waning consumption, which accounts for 60% of GDP, risks hurting growth in Asia’s third-largest economy, as borrowing costs rise. The Reserve Bank of India has increased interest rates by 250 basis points since May to tame inflation and signaled it isn’t ready to pause just yet, amid growing dissent within the rate-setting panel.
“My fear is that all sources of demand in the economy are contracting at the same time,” Jayanth Rama Varma, an external member of RBI’s Monetary Policy Committee, said in a recent interview.
With exports struggling on waning global demand and the government forges ahead with fiscal consolidation, Varma said rising borrowing costs will dent household budgets and, in turn, consumption. For Shashanka Bhide, another rate setter, demand in the economy is fueling inflation.
What Bloomberg Economics Says…
With the recovery on shaky ground, we think any further tightening would amplify downside risks to growth.
— Abhishek Gupta, senior India economist
For the full note, click here
There might be more pain in store as interest rates go up further and consumer activity in India’s key export market — the US — loses steam.
“Exports have slowed in the December quarter as the global economy hits the brakes,” said Pranjul Bhandari, chief India economist at HSBC Holdings Plc. “There were pockets of resilience,” he said, citing investment, improving rural economy, and goods outperforming services.
That’s helping India pull off a relatively strong performance in a tough environment where even China indicators are pointing to an uneven recovery despite its reopening. India is poised to expand at the world’s fastest pace in the fiscal year starting April, according to the IMF.
“A resilient domestic backdrop and continued increase in services activity continued to prop up India’s growth,” said Rahul Bajoria, an economist with Barclays Bank Plc.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
