India Consumer & Retail Report Q3 2017
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BMI View: We are forecasting another strong year for private consumption, given record-high consumer confidence, slowing inflation and a positive economic outlook. 2017 will represent a tail-off from a particularly robust 2016, and this will be driven by delayed effects from demonetisation. We also highlight the risk that the incoming GST will curb spending over the back half of the year and will lead to a rise in inflation as consumers and producers adjust to the new tax regime.
We expect the Indian economy to remain the fastest growing major economy in Asia owing to robust manufacturing and services sectors, as well support from an accommodative monetary policy by the central bank. As a result, we forecast real GDP growth of 7.0% for FY2016/17 (April-March). We are also bullish on the immediate outlook for consumer spending, projecting real growth in private final consumption in 2017 to reach 6.5% and 6.0% in 2018. This remains slightly lower than highs recorded over the last decade, but certainly it is a positive story given the size of the consumer market and in comparison with global peers. We also expect consumption growth to slow down in the near term due to reduced domestic demand following demonetisation, which has not been fully accounted for in recent figures. On a longer-term horizon, the normalisation in domestic demand, together with improving access to electricity, will support growth.