A recently published paper by the RBI (see
here) highlights the perceptible change in the macroeconomic outlook of the
professional forecasters, in recent months.
The latest round (September 2019) of the professional
forecasters' survey (PFS) indicates that professional forecasters are growing
increasingly skeptical about the macroeconomic conditions and growth in near
term. I believe that in the next round of PFS (November 2019) we shall see
further downward revision in the estimates as the data continues to deteriorate.
In my view, the professional forecasters play a critical role in
policy formulation and the quality of policy response to critical economic
conditions. The fact that in the latest episode the professional forecasters
have been quite slow in recognizing, underlines the inadequate policy response
so far. The positive take away is that the realization of the gravity of
situation is finally happening and it may hopefully reflect in the policy
response faster.
The key highlights of the September 2019 round of the PFS could
be listed as follows:
1. The forecast for GDP
growth has been downgraded to 6.2% from 7.6% in May 2018. However, since the
November forecast of many agencies and research houses is closer to 5% against
6% in September, it is reasonable to excpect that the November round of PFS
will see further downward revision in GDP growth estimates.
2. The forecasters have
sharply downgraded the FY20 personal consumption expenditure growth forecast to
5.5% in September 2019 against 7.6% in July 2019. The subdued Diwali season
sales may lead to further downward revision in this estimate.
3. The investment climate
is expected to remain poor in 2HFY20 also. The overall forecast for FY20
investment growth has been sharply downgraded to 6% against 9.2% in July 2019.
It would not be reasonable to expect further downward revision in investment
growth in the November 2019 PFS also.
4. Surprisingly the
forecasters do not expect material deterioration in the fiscal balance. Despite
persistently lower GST collections, cut in corporate tax rates and lower than
budgeted personal tax collection so far, the forecasters see only 20bps rise in
center's fiscal deficit to 3.3% from 3.1% estimated a year ago. No
deterioration is expected in the States' fiscal deficit.
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